Gulmohar Ltd., a company registered under Indian law owns a factory

Calcutta, wherein it manufactures jute products. By a notification of the State Govemment;issued during October, 1996, due to a strike and lock-out, it was declared a relief undertaking. After four months, in February, 1997, the lock-out was lifted. However, during the said period the company’s directors defaulted in payment of Provident Fund (PF) and other ancillary dues. During the month of December, 1997, the Regional PF Commissioner initiated criminal proceedings against the company and its directors under the Employees PF and Miscellaneous Provisions Act, 1952, for default and delay in payment of PF dues.

Immediately the directors of the company applied to the High Court for relief under Section 633 of the Companies Act, 1956, praying for relief from liability under the PF law. The petition is now pending before a single judge. The company and its directors desire to know from you, as to the tenability of their claim for relief at the High Court, and as to whether they would be excused and exonerated by the High Court, in respect of the contraventions committed under the PF law.

Briefly discuss the law on the subject and state whether the petition filed by the

directors would be admitted or not under the Companies Act.

(b) Explain the meaning and significance of “public examination” by the court

under the Companies Act, 1956. fC.A. (Final) Nov., 1998J

.9L1h5. (a) The crux of the matter involved in the above case, is whether the word “any proceeding” against an officer of a company, would mean only a proceeding under the Companies Act or any Criminal proceeding under any other law. The provisions of the Companies Act, define” officer” and” officer in default” but there is no definition for the word “proceeding”. In the present case, the proceeding has not resulted from or has not been brought about as a consequence of default, refusal, contravention, non-compliance or failure under the Companies Act, 1956, but has come about as a result of certain acts and omissions committed by the directors of the company Gulmohar Ltd. under the Employees PF and Misc. Provisions Act, 1952. The Court has powers under Section 633 to grant relief only to a director/officer of a company, and not to the company. But the significance of the words “in any proceeding”’-mployed in Section 633 (1) require to be understood. I

The facts of the case bear resemblance to those which came up before their Lordships of the Supreme Court in Rabindra Chamaria and others Vs. Registrar of Companies, West Bengal and others, 1992 (73) Compo Cas. 257 (SC).

Going by the tenor of section 633 and the Supreme Court ruling the directors of Gulmohar Ltd., cannot avail of relief under Section 633 of the Companies Act, 1956 and their petition is not likely to succeed. It is liable to be dismissed

What are the provisions of the Companies Act, 1956, relating to entering into contracts by agents of a company, in which the company is the undisclose

Section 416 of the Act provides that every person being the manager or other agent of a public company or of a private company which is a subsidiary of a public company, which enters into a contract for or on behalf of the company in which contract the company is an undisclosed principal, shall at the time of entering into the contract:

(a) make a memorandum in writing of the terms of the contract; and

(b) specify therein the person with whom it is entered into.

It is further provided that every such person, who enters into a contract, shall

forthwith:

(a) ‘deliver the memorandum to the company;

Corporate Laws & Secretarial Practice

(b) send copies thereof to each of the directors; and

(c) such memorandum shall be filed in the office of the company and laid before

the Board of Directors t its next meeting.

It is also provided that if default is made in complying with the requirements of the above provision, the contract shall at the option of the company, be voidable as against the company, and the person who enters into the contract, or every officer in default, as the case may be, shall be punishable with a fine which may extend to two

thousand rupees

State the provisions relating to professional immunity to legal advisers and

Companies AFt, 1956 postulates professional immunity for legal advisers/ counsels and bankeJ;S.-‘Phis section is similar to a string of provisions that one would find in the Indian Evidence Act, 1872, which envisages immunity to advocates and counsels for communications made in the course of discharging professional duties to a client, except that it would not apply where there is an intent to further a criminal purpose.

Section 251 of the Act lays down that nothing contained in the provisions of Sections 234 to 250 (relating to power of Registrar to call for information, seizure of documents by’the Registrar, investigation, inspector’s power to call for documents and evidence, seizure of documents, etc.) shall require the disclosure, to the Central Government, the CLB, Registrar or Inspector appointed by the Central Government, by a counselor banker, of any privileged communication made to him in that capacity, except as respects the name and address of his client (in the case O

ounsel) and the information other than such company, body corporate or person the case of a banker).

Provisions Regarding Dissolution of Defunct Companies

According to Section 462 (1) of the Companies Act, 1956 read with Rule 298 of the Companies (Court) Rules, the Official Liquidator is required to file the accounts of Mis. Imprudent Engineering Company Ltd. with the Court, twice a year, one made up to 31?t March and the second up to 30^th September, within 3 months of closing the accounts. The accounts should be drawn up in Form No. 144 of the Rules. Further, according to Rule 302, the accounts should be audited by a Chartered Accountant appointed by the Court or if the Court so directs by the Examiner of the Local Fund Accounts of the State concerned. A copy of the accounts so filed by the Official Liquidator with the Court is open to inspection by any creditor, contributory or any

person interested. .

Where the winding-up is not concluded within one year after commencement, the Official Liquidator is required within 2 months after the expiry of the year and thereafter until the winding-up is concluded, once every year to file his statement in the prescribed Form No. 148 (Rule 311) in Court. A copy thereof shall also be filed with the Registrar (Rule 511).

P. 5. Reckless Constructions Ltd. has gone into liquidation because of the inability of the company to pay its debts. During the course of winding up a proposal was put forward by the previous management to revive the working of the company through a scheme of arrangement between the company and its creditors. As per the Scheme, all the creditors have to forego fifty per cent of their dues. Some of the creditors and shareholders have vioced their opposition to the said Scheme. The company approaches you for advice. Discuss the steps that have to be taken by the company in

this regard. fC.A. (Final) May, 2001J

‘.9l.ns. As per the provisions contained in Section 517 of the Companies Act, 1956 M/ s. Reckless Constructions Ltd.

Procedure for Winding-up of Unregistered Company

The legal provisions and procedure relating to compulsory winding-up by Court will also apply in the case of winding-up of an unregistered company. In addition to that, the following provisions shall also be applicable:

(i) Contributories. In the event of an unregistered company being wound-up, everyn

shall be deemed to be a contributory, who is liable to pay, or contribute to the payment of

(a) any debt or liability of the company; or

(b) any sum for the adjustment of the rights of the members among themselves; or (c) the costs, charges and expenses of winding-up the company.

Every contributory shall be liable to contribute to the assets of the company all sums due from him in respect of any liability to payor contribute as aforesaid:

In the event of the death or insolvency of any contributory, the legal representative or official assignee of the contributory shall be liable [Section 585].

(ii) Stay of Proceedings. The same provisions as are applicable to stay of suit or legal proceedings against a ‘company’ at any time after the presentation of the petition and before making of the winding-up order, shall also apply to suits and proceedings against a contributory of the unregistered company, provided the application for stay is by a creditor [Section 586].

(iii) Suit or Proceedings. After an order has been made for winding-up of an unregistered company, no suit or proceedings can be proceeded with or commenced against the company without the leave of the Court [Section 587].

(iv) Direction of the Court as to Properties. If an unregistered company has no power to sue and be sued in a common name, the Court may by the winding-up order or by any subsequent order direct that all or any part of the property, movable or immovable, belonging to the company or held by trustees, shall vest in the Official Liquidator by his official name. Thereupon, the property or part thereof specified in the order shall vest in the Official Liquidator [Section 588].

The Official Liquidator may, after giving such indemnity as the Court may direct, bring or defend in his name any suit or legal proceeding relating to that property, or which it is necessary to bring or defend for the purpose of effectually winding-up the company and recovering its property [Section 588(2)].

(b) Meaning of a Defunct Company

A defunct company means a company which never commenced business or which is not carrying on business and has either no assets or has such assets as shall not be sufficient to meet the costs of liquidation. A company is, however, not considered defunct if the cessation of business is due to the conduct of winding-up [Re, Outlay Assurance Society”]. Also, the mere fact tl;1at the number of shareholders of a company are reduced below the statutory minimum does not render it defunct [Surjan Das Vs. Chaboa Cotton Co.”].

The policy which is followed with regard to weeding out the defunct companies is that where it appears from the latest available balance sheet of a defunct company that it has adequate realisable assets, steps are taken to take the company into compulsory liquidation. It is only where the latest available balance sheet shows that the company has no assets or has such assets as would not be sufficient to meet the costs of liquidation, steps are taken to strike their names off the register under Section 560t.

Service Tax - Valuation - Commission paid by broadcasting agency to the advertising agency not includible in assessable value

Indian Service Tax

Clarifications

Agency Commission

F. No. 341/43/2001-TRU, Date: 18/10/2001

Sub:- Service Tax - Valuation - Commission paid by broadcasting agency to the advertising agency not includible in assessable value

I am directed to say that doubts have been raised as to whether the "value of taxable service" in respect of broadcasting services will include the commission paid by the broadcasting agency to the advertising agency or not. The facts of the case are as follows.

2. In the invoices raised by the broadcasting agency on the advertising agency, the gross amount for the broadcasting services is indicated. From this amount, the commission or discount (usually 15% of the gross amount) given to the advertising agency is deducted and the net amount payable by the advertising agency to the broadcasting agency is indicated. Thus what is "received by the broadcasting agency" for the service rendered is the net amount excluding the commission or discount. In some cases, only the net amount is invoiced to the advertising agency.

3. The matter has been examined by the Board. The value of taxable service is the amount received by the broadcaster for providing the broadcasting service. Therefore, service tax is leviable only on the amount received by the broadcaster for the services rendered. Since the amount received by the broadcaster is net of the commission or discount paid to the advertising agency, service tax will be payable on this amount. However, such abatement towards commission/discount shall be allowed only when the same is clearly indicated in the invoicelbill raised by the broadcasting agency on the advertising agency. It will be relevant to mention here that on the commission/discount received by the advertising agency, service tax is separately leviable under the category of advertising services. In this regard, your attention is invited to Board's circular F. No. 341/43/96-TRU, dated 31-10-96 wherein it was clarified that the commission received by the advertising agency for getting the advertisement published in the print media (i.e. newspaper, periodicals etc.) or the electronic media (Doordarshan, private channels, AIR etc.) will be includible in the value of taxable service under the category of the "advertising service".

Doordarshan and All India Radio

Cir.No. 61/10/2003-ST, Date: 14/7/2003

Sub:- Service Tax on Doordarshan and All India Radio under the category of Broadcasting Services.

I am directed to refer Board's letter of even number dated 27th March 2003, on the above cited subject. In continuation of the referred letter, I am directed to say that the protection was available to Prasar Bharati Corporation (Doordarshan and All India Radio) from payment of the Service Tax on the basis of interpretation of Section 22 of the Prasar Bharati ( Broadcasting Corporation of India) Act, 1990.

The Section 22 of the Prasar Bharati (Broadcasting Corporation of India) Act, 1990 hax been omitted vide Section 163 of the Finance Act, 2002 with effect from 1st April 2003. In light of the above, I am directed to say that with effect from 1 st April 2003 the protection under Section 22 of the Prasar Bharati (Broadcasting Corporation of India) Act, 1990 is no longer available to the Prasar Bharati Corporation (Doordarshan and All India Radio) and they are liable to pay the Service Tax as the provider of the Broadcasting Services with effect from 1 st April 2003.

The instructions issued vide the letter dated 27th March, 2003 is modified in above terms and the field formations should be suitably instructed to get all units of Prasar Bharati Corporation registered immediately.

"Broadcasting" has the meaning assigned to it in cl. (c) of S. 2 of the Prasar Bharti (Broadcasting Corporation of India) Act, 1990

Indian Service Tax

Brodcasting Service

Effective Date: 16/07/2001

Authority: Notification No. 4/2001-ST, dt. 9.7.2001. (See at the end of this Chapter).

Rate of Service Tax: 8% from 14/5/2003 (5% upto 13/5/2003) 10% from 10/9/2004 - Cess 2% of 10% = .2. Total ST = 10.2%.

Definitions

"Broadcasting" has the meaning assigned to it in cl. (c) of S. 2 of the Prasar Bharti (Broadcasting Corporation of India) Act, 1990 and also includes programme selection, scheduling or presentation of sound or visual matter on a radio or a television channel that is intended for public listening or viewing, as the case may be; and in the case of a broadcasting agency or organisation, having its head office situated in any place outside India, includes the activity of selling of time slots or obtaining sponsorships for broadcasting of any programme or collecting the broadcasting charges on behalf of the said agency or organisation, by its branch office or subsidiary or representative in India or any agent appointed in India or by any person who acts on its behalf in any manner; [Section 65(15)).

"Broadcasting Agency or Organisation"means any agency or organisation engaged in providing service in relation to broadcasting in any manner and, in the case of a broadcasting agency or organisation, having its head office situated in any place outside India, includes its branch office or subsidiary or representative in India or any agent appointed in India or any person who acts on its behalf in any manner, engaged in the activity of selling of time slots for broadcasting of any programme or obtaining sponsorships for programme or collecting the broadcasting charges on behalf of the said agency or organisation; [Section 65 (16)).

Taxable service

Taxable service means any service provided, to a client, by a broadcasting agency or organisation in relation to broadcasting in any manner and, in the case of a broadcasting agency or organisation, having its head office situated in any place outside India, includes service provided by its branch office or subsidiary or representative in India or any agent appointed in India or by any person who acts on its behalf in any manner, engaged in the activity of selling of time slots for broadcasting of any programme or obtaining sponsorships for programme or collecting the broadcasting charges on behalf of the said agency or organisation.

Explanation:-For the removal of doubts, it is hereby declared that so long as the radio or television programme broadcast is received in India and intended for listening or viewing, as the case may be, by the public, such service shall be a taxable service in relation to broadcasting, even if the encryption of signals or beaming thereof through the satellite might have taken place outside India; [Section 65 (105) (zk)).

Value of taxable service:- Gross amount charged from a client.

Exemptions

• See Chapter on "General Exemptions"

• Specific exemptions

  (i) Uplinking agencies like VSNL or other earth stations

  (ii) Cable TV operators

  (iii) Multi-system operators who merely retransmit

  (iv) Commission paid to advertising agency if shown separately

  (v) Cinema halls, studios

  (vi) production of TV serials

Person liable to pay: Broadcasting Agency or Organisation.

Exemption

See Notification No. 8/2001-ST, dt. 09/07/2001.

Head of Account

SI. Code SCCD Minor-head 004400141 Broadcasting Service 00440164 Sub-head 00440014101 Tax Collection 00440165 112 Sub-head 00440014102 Other Receipts 00440166 117 Sub-head 00440014103 Deduct Refunds 00440167 114

Main text of Departmental Circular/TN

[Ministry's FNo. B.II/I/2000-TRU dated 9/7/2001 - Annexure V]

1. As per Section 65(13), 1994, "Broadcasting" has been defined to have the meaning assigned to it in clause (c) of Section 2 of the Prasar Bharati (Broadcasting Corporation of India) Act, 1990. As per this definition "Broadcasting" means the dissemination of any form of communication like sign, signals, writing, pictures, images and sound of all kind by transmission of electro-magnetic waves through space or through cables intended to be received by the general public either directly or indirectly through the medium of relay stations and all is grammatical variations and cognate expressions shall be construed accordingly. The taxable service is any service provided to a client, by a broadcasting agency or organisation in relation to broadcasting, in any manner.

2. The service covers both radio broadcasting and television broadcasting. While radio .broadcasting is done by the All India Radio or any private radio channel, television broadcasting is done by Doordarshan, Indian TV Channels and Foreign TV channels. The broadcasting may be of advertisements, serials/ programmes or live events. The client is the person who wants an advertisement to be broadcast or the sponsor of a serial or programme or event who wants the serial or programme or event to be broadcast. The service provider, that is, broadcasting agency or organisation is the AIR, Doordarshan, other Indian TV Channels and foreign TV channels who broadcast the programme in India.

3. Broadcasting is done either terrestrially or through satellite links. Most of the private TV channels are using satellite links for broadcasting their programmes. The uplinking of the programme to the satellite is done through VSNL or other earth stations located in India or through other agencies located abroad. The up-linking agencies are not broadcasting agencies and are not li~ble to service tax in respect of such service. The signals beamed by satellite are received either by Multi System Operators (MSO) or directly by cable operators. In the latter case the cable operator further retransmits the signals to the public (viewers). However, in the case of MSO, they first retransmit signals to the cable operator who in turn retransmits the same to the viewers. The cable TV operator who merely retransmits the programme is not a broadcasting agency or organisation with respect to such retransmitted programmes. The MSO also is not a broadcasting agency to the extent he merely retransmits signals. However in case the MSO operates a local cable channel such as Spectranet, Siticable, Incable Sumangali, etc., and broadcasts a programme or serial or advertisement on his own, he would be liable to pay service tax on the amount he charges for the service rendered to his clients in relation to broadcasting of such programmes. It may be noted that there may be instances when cable TV operators themselves undertake to broadcast advertisements. Cable television operators have, however, been exempted from the levy of service tax vide notification No. 8/2001-ST.

4. Broadcasting service is provided by selling time slots. In the case of advertisements, service charges are recovered based on the duration and frequency of advertisement and the time slot (prime time, non-prime time etc.) provided for the advertisement. In the case of serials/programmes/ events, service charges are made on the basis of factors such as duration, time slot, etc. However, some free commercial time is provided to the sponsor, which he can sell the same to others. In the case of broadcasting service, the advertisement charges or the sponsorship charges received by the broadcasting agency or organisation are the consideration for the services rendered and service tax is payable on these charges.

5. In case of foreign satellite TV channels, their head office may be located outside India. However, they have their branch offices or subsidiary companies located in India. In some cases, they have appointed agents. These branch offices/subsidiary companies/agents act on behalf of these channels, selling time slots and recovering service charges and remitting the same to their head office/holding company/principals as the case may be. In such cases, these branch offices/subsidiary companies/agents are rendering the service in relation to broadcasting and therefore, they are liable to pay the service tax and comply with all other procedural formalities relating to service tax.

6. In the case of AIR and Doordarshan, the billing for the service rendered is done by the Regional Stations of AIR or Regional Doordarshan Kendras. These Regional Offices will have to be, therefore, registered for payment of service tax and for complying with other procedural formalities.

7. A doubt has been raised whether Prasar Bharati (AIR and Doordarshan) is liable to pay service tax since under Section 22 of the Prasar Bharati Act 1990, they are exempt from any income tax or any other tax in respect of any income, profit or gains, accruing or arising out of the Fund of the corporation or any amount received by them. In this regard, it is clarified that the said Section 22 applies only in respect of taxes on income or profit or gains. The exemption is only in respect of direct tax and not in respect of indirect tax. As such the argument that AIR or Doordarshan are not liable to pay service tax is not correct.

"goods" has the meaning assigned to it in clause (7) of Section 2 of the Sale of Goods Act, 1930 (3 of 1930);

Indian Service Tax

Booking of Transport of Goods by Road

Effective

Date: 10/09/2004.

Authority: Finance (No.2) Act, 2004

Rate of Service Tax: 10% - Cess 2% of 10% = 0.2. Total ST = 10.2%.

Definitions

"goods" has the meaning assigned to it in clause (7) of Section 2 of the Sale of Goods Act, 1930 (3 of 1930); [Section 65 (50)]

"goods carriage" has the meaning assigned to it it! clause (14) of Section 2 of the Motor Vehicles Act, 1988 (59 of 1988), [Section 65 (50a)]

"goods transport agency" means any commercial cQncern which provides service in relation to transport of goods by road and issues consignment note, by whatever name called, (Section 65 (50b)]

Taxable service

Taxable service means any service provided, to a customer, by a goods transport agency, in relation to transport of goods by road in a goods carriage. [Section 65 (105) (zzp)].

Exemptions

See Notification No. 18/2004-ST, dt. 10/9/2004. For full text see under "Airport Service".

• Truck operators

• Truck owners

• Rail/Air/Ship cargo courier

Value of taxable service: Gross amount

Person liable to pay: Goods Transport Agency

Head of Account: To be issued.

Main text of Departmental Circular/TN

F.No. B2/8/2004-TRU, Date: 10/9/2004

26. Transport of goods by road by a goods transport agency: In pursuance to an agreement between the Government and representatives of the transport industry, a Committee has been set up to look into appropriate mechanism/modalities for collection and payment of service tax by commercial concerns and the rules/notifications will be finalized in consultation with the Committee. The Committee would give its report within two months. In tenus of the agreement, the tax would be levied and collected in a manner to be notified. No tax would, therefore, be payable by the goods transport agency till such time Government comes out with the relevant rules/notifications prescribing the modalities for levy and collection.

In exercise of the powers conferred by Section 149 of the Finance Act, 2002ta

Indian Service Tax

Notifications

Effective date

[Notification No. 8/2002-ST. dated 01.08.2002]

In exercise of the powers conferred by Section 149 of the Finance Act, 2002 (20 of 2002), the Central Government hereby appoints the 16th day August, 2002, as the date on which the Finance Act, 1994 (32 of 1994) shall be amended as provided in the said Section 149 and the service tax shall be levied under sub-section (6) of Section 66 of the Finance Act, 1994 (32 of 1994).

Exemption

[Notification No. 11/2002-ST. dated 01.08.2002]

In exercise of the powers conferred by Section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service provided to a customer by a beauty parlour in relation to hair dyeing, from the whole of the service tax leviable thereon under Section 66 of the said Act.

2. This notification shall come into force on the 16th day of August, 2002.

What is the significance and implication of the word "establishment"?

Indian Service Tax

Clarifications

Point III. Beauty Parlours

The definition of Beauty Parlour States that it means en establishment providing beauty treatment services. What is the significance and implication of the word "establishment"?

Reply

The Chairman replied that there is no special significance of the word "establishment" which has to be understood as is understood in common parlance.

(Authority: RAC on 6.9.2002 of Vadodara Commissionerate)

Value of Taxable Service: Gross amount charged by the beauty parlour in relation to beauty treatment services.

Indian Service Tax

Beauty Parlour

Effective

Date: 16/08/2002

Authority: Notification No. 8/2002-ST, dt. 1/8/2002. (See at the end of this Chapter).

Rate of Service Tax: 8% from 14-5-2003 (5% upto 13/5/2003) 10% from 10.9.2004 - Cess 2% of 10% = 0.2. Total ST = 10.2%.

Definitions

"beauty treatment" means face and beauty treatment, cosmetic treatment, manicure, pedicure or counselling services on beauty, face care or make-up, [Section 65 (17)]

"beauty parlour" means any establishment providing beauty treatment services, [Section 65 (18)]

Taxable Service: Beauty treatment services including counselling services provided by beauty parlour to customers.

Value of Taxable Service: Gross amount charged by the beauty parlour in relation to beauty treatment services.

Exemptions

• See Chapter on " General Exemptions"

• Specific exemptions

  (i) Hair cutting, shaving, plastic/cosmetic surgery, hair dyeing, mere sale of cosmetics, skin treatment by a doctor

  (ii) Free services to club members

Person liable to pay: Beauty Parlour.

Exemption

See Notification No. 11/2002-ST, dt. 01/8/2002.

Head of Account

S1. Code SCCD Minor-head 004400152 Beauty Parlours Services 00440208 Sub-head 00440015201 Tax Collection 00440209 113 Sub-head 00440015202 Other Receipts 00440210 117 Sub-head 00440015203 Deduct Refunds 00440211 114

Main text of Departmental Circular/TN

F. No. B11/1/2002-TRU, Date: 1/8/2002

1. The section referred to hereinafter are the sections or clauses of the Finance Act, 1994 as amended by the Finance Act, 2002. Reference to sub­clause or clause means clause or sub-clause of Section 65 of the Finance Act, 1994 as amended by the Finance Act, 2002.

2. As per clause (16), "beauty treatment" includes face and beauty treatment, cosmetic treatment, manicure, pedicure or counseling services on beauty, face care or make-up and as per clause (17), "beauty parlour" means any establishment providing beauty treatment services. The taxable service, as per sub-clause (zq) of clause (90) means any service provided, to a customer, by a beauty parlour in relation to beauty treatment.

3. This service covers the beauty treatments such as facial, manicure, pedicure and other make ups provided by beauty parlours. However, it does not include hair cutting and shaving. Further, it does not include plastic surgery/cosmetics surgery done to improve the appearance, as they are not the kind of serVice provided by the beauty parlours. These are more appropriately classifiable as medical services.

3.1 The service provided in relation to hair dyeing has been exempted vide Notification No. 11/2002-ST, dt. 1/8/2002.

4. For providing beauty services, parlours use materials such as cosmetics and toilet preparations. A point has been raised as to whether the cost of such materials will be included in the value of taxable service. It is clarified that these materials are essential for providing the service and they are not sold as such but used for treatment such as facials etc. Therefore, they are integral to the service provided. Hence service tax will be charged on the gross amount and no abatement is admissible on account of the value of material consumed in providing the service.

5. Often beauty parlours also sell cosmetics in retail. Quite obviously, no service tax is payable on mere sale of cosmetics or any other material.

banking and other financial services" includes asset management including portfolio inance Act

Indian Service Tax

Clarifications

Chit Funds

Cir. No. 41/4/2002, Date: 15/03/2002

I am directed to say that doubts have been raised as to whether the services rendered by a chit fund is classifiable in the category of taxable service under "banking and other financial services". As per Section 65(10) of the F"banking and other financial services" includes asset management including portfolio inance Act, 1994, management, all fonus of fund management, pension fund management, custodial depository and trust services, but does not include cash management, provided by a banking company or a financial institution including a non banking financial company. The matter under consideration is as to whether the activity of chit funds falls in the category of fund management for the purposes of levy of the service tax on such activity.

2. The matter has been examined by the Board in consultation with the Reserve Bank of India. The Reserve Bank of India has advised that the business of a chit fund is to mobilise case from the subscribers and effectively cause movement of such cash to keep it working. Therefore the activity of chit funds is in the nature of cash management, which is specifically excluded from the scope of the "banking and other financial services" as defined under Section 65(10) of the Finance Act, 1994.

3. In view of facts mentioned above, it is clarified that "banking and other financial services" will not include the service rendered by chit funds. Accordingly, the service rendered by chit funds will not fall in the category of taxable service as defined in Section 65(72)(zm) of the Finance Act, 1994.

Depository Service

Cir. No. 50/11/2002-ST, Date: 18/12/2002

Sub:- Levy of Service Tax on Depository Service under Banking &, other Financial services.

I am directed to say that doubts have been raised as to whether Service Tax is payable on the services rendered by Central Depository Services (India) Limited (CDSL). CDSL is providing depository services in respect of DEMAT stocks to its customers. It has also implemented "Electronic Access to Securities Information" (easi), to enable the owner to access accounts in the first phase and transact depository business in the second phase of the project. CSDL charges certain fee such as registration fee, annual fee etc for providing service of easi.

2. A clarification has been sought in regard to applicability of service tax levy on the service of 'easi', in view of clarification issued vide F. No.B-ll/l/ 2001-TRU dated 9-7-2001 that e-commerce would not be liable to service tax under the category of "on line information and data base access and lor retrieval service".

3. The matter has been examined in the Board. Instructions issued vide F. No.B-ll/l/2001-TRU, dated 9.7.2001 had clarified in Annexure-IV that in e­commerce transactions, no service of online information and database access/ retrieval was involved and therefore, e-commerce transactions would not, ordinarily, be covered under the service tax net.

However, this clarification is not applicable to services covered under other taxable services including: "banking and other financial services" which are provided through INTERNET.

4. Service tax has been imposed on 'banking and other financial service' with effect from 16.07.2001. Depository service is one of the services covered under the category of 'banking and other financial services.' The definition of 'Banking and other financial services' as given in Section 65 of the Finance Act 1994 includes "provision and transfer of information and data processing". "Banking and other financial services" and "on line information and data base access and/or retrieval service" are two distinct taxable services having distinct coverage. The service of 'easi' provided by CDSL is a part and parcel of depository service and hence covered under the category of "banking and other financial service". They are liable to pay service tax on all depository service even if service is provided through Internet.

Government of India &, State Government

[Notification No. 13/2004-ST, dt. 10/9/2004)

In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service provided by a banking company or a financial institution including a non­ banking financial company, or any other body corporate or commercial concern, to the Government of India or the Government of a State in relation to collection of any duties or taxes levied by the Government of India or the Government of a State from the whole of the service tax leviable thereon under section 66 of the said Act.

Prior to 10-9-2004

[Notification No.25/2004-ST, dt. 10/9/2004)

In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts that portion of the value of following taxable services, namely -

• services provided to a customer, by a commissioning and installation agency in relation to erection,

• services provided to any person, by a sub-broker in connection with the sale and purchase of securities listed on a recoginsed stock exchange,

• services provided to any person by a multisystem operator in relation to cable services,

• services provided to a client by a commercial concern in relation to the following business auxiliary services namely,­

  (i) procurement of goods or services, which are inputs for the client,

  (ii) production of goods on behalf of the client,

  (iii) provision of service on behalf of the client or

  (iv) a service incidental or auxiliary to any activity specified in (i) to (iii) above,

• services provided to a customer by any body corporate or commercial concern, other than a banking company or a financial institution including a non-banking financial company, in relation to banking and other [mancial services,

• services provided to a customer by a banking company or a financial institution including a non-banking financial company in relation to financial services namely lending, issue of pay order, demand draft, cheque, letter of credit and bill of exchange, providing bank guarantee, over draft facility, bill discounting facility, safe deposit locker, safe vaults, operation of bank accounts,

• services provided to any person by a tour operator, other than a tour operator engaged in the business of operating tours in a tourist vehicle covered by a permit granted under the Motor Vehicles Act, 1988 or rules made thereunder, in relation to a tour and

• service provided to a policy holder, by an insurer carrying on life insurance business in relation to the risk cover in life insurance, from the whole of service tax leviable thereon under section 66 of the said Act, which is received by the service provider prior to the 10th day of September, 2004.

Financial leasing services including equipment leasing and hire purchase

Indian Service Tax

Banking & Other Financial Services

N.B.:- See also "Foreign Exchange Broker's Service".

Effective

Date: 16/07/2001

Authority

Notification No. 4/2001-ST, dt. 9.7.2001 (for full text of Notification see under Broadcasting).

Rate of Service Tax: 8% from 14-5-2003 (5% upto 13-5-2003) 10% from 10.9.2004 - Cess 2% of 10% = 0.2. Total ST = 10.2%.

Definitions

"Banking and Other Financial Services" means ­

• 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, namely:­

  (i) Financial leasing services including equipment leasing and hire purchase,

  (ii) Credit card services,

  (iii) Merchant banking services,

  (iv) Securities and foreign exchange (forex) broking,

  (v) Asset management including portfolio management, all forms of fund management, pension fund management, custodial, depository and Mi trust services, but does not include cash management

  (vi) Advisory and other auxiliary financial services including investment Sub and portfolio research and advice, advice on mergers and acquisitions and advice on corporate restructuring and strategy

  (vii) Provision and transfer of information and data processing and

  (viii) Other financial services, namely, lending, issue of pay order, demand draft, cheque, letter of credit and bill of exchange, providing bank guarantee, over draft facility, bill discounting facility, safe deposit locker, safe vaults, operation of bank accounts,

• Foreign exchange broking provided by a foreign exchange broker other than those covered under sub-clause (a), [Section 65(12)]

"Financial Institution" has the meaning assigned to it in clause (c) of Section 45-1 of the Reserve Bank of India Act, 1934 (2 of 1934), [Section 65(45)]

"Non-banking Financial Company" has the meaning assigned to it in clause (f) of Section 45-1 of the Reserve Bank of India Act, 1934 (2 of 1934), [Section 65(74)]

Taxable service

Taxable service means any service provided, to a customer, by a banking company or a financial institution including a non-banking financial company, or any other body corporate or commercial concern, in relation to banking and other financial services, [Section 65(105)(zm)]

Value of taxable service: Gross amount charged from a customer.

Exemption

• See Chapter on " General Exemptions"

• Specific Exemptions

  (i) Individuals, proprietorship/partnership firms

  (ii) Mutual funds

  (iii) Chit Funds

  (iv) NSDL/CSDL free paid

Person liable to pay: Banking company, Financial Institution and Non-banking Financial Institution.

Head of Account

SI. Code SCCD Minor-head 004400143 Banking and other Financial Services 00440172 Sub-head 00440014301 Tax Collection 00440173 111 Sub-head 00440014302 Other Receipts 00440174 118 Sub-head 00440014303 Deduct Refunds 00440175 113

Questions & Answers

Q. Whether Finance Companies providing Banking and Financial services and having proprietary/partnership status are liable to Service Tax?

Ans. The Banking and Financial services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate is chargeable to Service Tax. The term body corporate means a private limited public limited company or a Government company. Such companies should be either a banking company or a financial institution or non-banking financial company to come under the tax net. In other words individual proprietorship or partnership firms will not come under the tax net.

Q. Whether buying and selling of foreign exchange by the authorised dealers and money changers are under Service Tax net?

Ans. Only the service of " Foreign Exchange Broking" when provided by the foreign exchange brokers, authorized dealers and money changers has been brought under tax net.

[Source: Directorate of Publicity and Public Relations, Customs & Central Excise, New Delhi, October, 2003].

Changes from 10/9/2004

F .No. B2/8/2004-TRU, Date: 10/9/2004

19. Expansion of banking and other financial services

19.1 The existing taxable service i.e., 'banking and other financial services', S' has been expanded both in terms of its coverage and the types of service providers. Financial services would now also include specified financial services, namely, lending, issue of pay order, demand draft, cheque, letter of credit, bill a of exchange, providing a bank guarantee, overdraft facility, bill discounting, a safe deposit lockers, or safe vaults and operation of bank accounts. The interest amount would, however, remain excluded from the purview of service tax. In addition to banking company, financial institution including a non-banking 'N financing company, body corporate and any other commercial concern providing financial services will also be covered.

19.2 The 'interest on loans' has been specifically excluded by way amendment to the provisions relating to valuation (S.67). All such interests that are in the nature of interests on loans would thus remain excluded from taxable value. Further, clarifications on these issues would be issued shortly.

19.3 Collection and other bank charges in relation to taxes/duties collected on behalf of the Union/State Governments and Union Territories have beer exempted from service tax. (Refer Notification No. 13/2004-ST, dated 10.9.2004)

Main text of Departmental Circular/TN

[Ministry's F.No. B.II/l/2000-TRU dated 9.7.2001 - Annexure VII]

1. As per Section 65(10)* of the Finance Act, 1994, " banking and financial

services" means the following services provided by a banking company or a financial institution including a non banking financial company, namely:

• Financial leasing services including equipment leasing and hire-purchase by a body corporate,

• Credit card services,

• Merchant banking services,

• Securities and foreign exchange (forex) broking,

• Asset management including portfolio management, all forms of fund management, pension fund management, custodial depository and trust services, but does not include cash management,

• Advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisition and advice on corporate restructuring and strategy and

• Provision and transfer of information and data processing.

1.1 The taxable service, as per Section 65(72)(zm) means any service provided to a customer, by a banking company or a financial institution including a non banking financial company, in relation to banking and other financial services.

1.2 The definitions of 'banking', 'banking company', 'financial institution' and 'non-banking financial company' as per the Banking Regulation Act, 1949 and Reserve Bank of India Act, 1934 are given below -

"Banking" means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise.

"Banking company" means any company which transacts the business of banking in India.

"Financial institution" means any non-banking institution which carries on as its business or part of its business any of the following activities, namely ­

• The financing, whether by way of making loans or advances or otherwise, of any activity other than its own,

• (ii) the acquisition of shares, stock, bonds, debentures or securities issued by a government or local authority or other marketable securities of like nature,

• (iii) letting or delivering of any goods to a hirer under a hire-purchase agreement as defined in clause (c) of Section 2 of the Hire Purchase Act, 1972 (26 of 1972),

• (iv) the carrying of any class of insurance business,

• (v) managing, conducting or supervising, as foreman, agent or in any other capacity, of chits or kuries as defined in any law which is for the time being in force in any State, or any business, which is similar thereto,

• (vi) collecting, for any purpose or under any scheme or arrangement by whatever name called, monies in lump sum or otherwise, by way of subscription or by sale of units, or other instruments or in any other manner and awarding prizes or gifts whether in cash or kind, or disbursing monies in any other way, to persons from whom monies are collected or to any other person, but does not include any institution, which carries on as its principal business ­

  (a)	agricultural operations, or
  	(aa) industrial activity, or
  (b)	purchase or sale of any goods (other than securities) or providing of any service, or
  (c)	the purchase, construction or sale of immovable property, so, however, that no portion of the income of the institution is derived from the financing of purchases, construction or sales of immovable property by other persons.
  	" non-banking financial company" means­
  	(i) a financial institution which is a company,
  	(ii) a non banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner,
  	(iii) such other non-banking institution or class of such institutions, as the Bank may, with the previous approval of the Central Government and by notification in the Official Gazette, specify.

2. Financial services covered under the tax net are specifically mentioned in the definition itself.

2.1. Financial leasing including equipment leasing and hire purchase:

2.1.1 In case of financial leasing including equipment leasing and hire-purchase, the service is taxable only if it is rendered by a body corporate. The term 'body corporate' has the meaning assigned to it in clause (7) of Section 2 of the Companies Act, 1956. Briefly, body corporate means a private limited, public limited company or a Government company. Such companies should be either a banking company or a financial institution or non-banking financial company to come under the tax net. In other words individuals, proprietorship or partnership firms will not come under the tax net. The leasing or hire­ purchase may be of motor vehicles, machinery and equipment or other goods.

2.1.2 In the case of leasing or hire purchase, it is understood that the general business practice is as follows: The service provider enters into a leasing or hire-purchase agreement with the lessee or hire-purchaser. At the time of entering into the agreement, they collect a charge called lease management fee or processing fee or documentation charges or by any other name, which is usually a percentage of the transaction value. The lease rental or hire purchase amount is recovered in equated monthly instalments (EM!) over the period of lease or hire -purchase as indicated in the agreement through post dated cheques and no separate bills are raised for the monthly recovery. Every agreement bears a unique number.

2.1.3 The EMIs consist of recovery of principal amount (towards the original cost of the equipment) and finance/interest charges. The allocation between the principal and the finance/interest charges are known to and agreed upon by both the parties. The customer repayment schedule contains the details of the EMIs with the break up for the principal and the interest. In respect of leasing and hire-purchase, the amount recovered as principal is not the consideration for services rendered but is credited to the capital account of the lessor/hire purchase service provider. The interest/finance charges IS the revenue or income and is credited to the revenue account. Such interest or finance charges together with the lease management feel processing fee/documentation charges is the consideration for the services rendered and, therefore, they constitute the value of taxable service and service tax is payable on this value. Accordingly it is clarified that service tax in the case of financial leasing including equipment leasing and hire purchase will be leviable only on the lease management fee/processing fee/documentation charges (recovered at the time of entering into the agreement) and on the finance/interest charges (recovered in equated monthly instalments and not on the principal amount.

2.1.4 A question has been raised whether lease or hire-purchase agreements entered into prior to the imposition of levy (prior to 16-7-2001), would be liable to service tax. In this regard, it is clarified that such agreements entered into prior to 16-7-2001 will not be liable to service tax, provided the property/goods has also been received by the lessee prior to 16.7.2001.

2.2 Credit card services

2.2.1 This is a service where the customer is provided with credit facility for purchase of goods and services in shops, restaurants, hotels, railway bookings, petrol pumps, utility bill payments, etc. Cash advances are also permitted upto specified limits in most of the. cases.. This service is provided by nationalised banks, multi-national banks and private banks.

2.2.2 For rendering the service, the service provider collects joining fee, additional card fee, annual fee, replacement card fee, cash advance fee, charge slip/statement retrieval fee, surcharge/service charges on railway fare, fuel charges and utility bill payments, charges on over limit accounts and late payment fee, interest on delayed payment, interest on revolving credit, etc. The fees may vary based on the type of card and from bank to bank. All these charges, including interest charges are made for the services rendered. Hence they all form part of the value of the taxable service in this case.

2.2.3 The service tax is leviable only in respect of transactions which are done using a credit card on or after 16th of July 2001. Any amount paid by a customer to credit card service provider in respect of transaction done prior to 16th July, 2001 is not liable to service tax even though such amount is paid on or after the 16th July, 2001.

2.3 Merchant banking services.

Banks and Financial institutions including NBFCs providing merchant banking services are governed by the SEBI (Merchant Bankers) Rules, 1992 and SEBI (Merchant Bankers) Regulations, 1992. As per these rules and regulations, merchant banking service is any service provided in relation to issue management either by making arrangements regarding selling, buying or subscribing securities as manager, consultant, advisor or rendering corporate advisory service in relation to such issue management. This, inter-alia, consists of preparation of prospectus and other information relating to the issue, determining financial. structure, tie up of financiers and final. allotment and refund of the subscription for debt/equity Issue management and acting as advisor, d: consultant, co-manager, underwriter and portfolio manager. In addition, merchant banking services also include advisory services on corporate restructuring, debt or equity restructuring, loan restructuring, etc. The fee charged by the merchant son banker for rendering these services will be the taxable value in respect of this acc service.

2.4 Asset management including portfolio management and all forms of fund management, pension fund management, custodial depository and trust the services.

2.4.1 Asset management and portfolio managers are also governed by the and SEBI (Portfolio Managers) Rules, 1993 and SEBI (Portfolio Managers) inch Regulations, 1993. As per these rules and regulations, the " portfolio manager" means any person who pursuant to a contract or arrangement with a client form advises or directs or undertakes on behalf of the client (whether as discretionary manager or otherwise) the management or the administration of portfolio of securities or the funds of the client, as the case may be. They enter in agreement with the client and charge an agreed fee for providing the service. The tax will be leviable on the fee charged for providing these services. Similarly in the case of other types of fund management such as pension fund management, service IT. tax will be leviable on the fee charged for providing the service.

2.4.2 With respect to mutual funds, a question has been raised whether the asset management company is liable to pay service tax as it may not fall in the category of NBFC. It is clarified that such asset management companies are not NBFC. Hence they will riot come under the purview of service tax.

2.4.3 Custodial depository services means safe keeping of securities of a client and providing services incidental thereto and includes­

• Maintaining accounts of securities of a Client, Banking & Other Financial Services

• Collecting the benefit of rights accruing to the client in respect of the securities,

• Keeping the client informed of the action taken or to be taken by the issuer of securities, having a bearing on the benefits or rights accruing to the client and

• Maintaining & reconciling records of the services referred to in sub­clauses (a) to (c). Taxable value is the fee charged for providing custodial services. However, service tax will not be leviable on NSDL or CSDL fees paid to the depositories and recovered from the customers on actuals basis.

2.5 Other auxiliary financial services.

2.5.1 Some examples of other auxiliary financial services are investment and portfolio research and advice, advice given on mergers and acquisition, advice on corporate restructuring and strategy, market analysis and intelligence.

2.6 In the case of banks and financial institutions including NBFCs, while some services may be done in a centralised way (that is centralised billing and accounting) either at the head office or regional office, in respect of other services such as financial leasing including equipment leasing, specified branches may be providing the service with separate billing and accounting. In respect of a taxable service, where the billing and accounting is centralised in an office of the bank, only such office needs to be registered and made liable to pay service tax in respect of such service. Where the billing and accounting is not centralised and is undertaken by different branches of a bank or a financial institution including NBFCs, each such branch office will have to be registered and made responsible for payment of service tax and compliance with other procedural formalities.

Clarification regarding service tax on authorised service station.

Indian Service Tax

CLarifications

Cir. No. 699/15/2003-CX, Dt. 5/3/2003

Sub: Clarification regarding service tax on authorised service station.

I am directed to say that some doubts have been raised as to:

• Whether the service provided by an Authorised Service Station related to the motor vehicles other than those for which they do possess authorisation from the manufacturer, are liable to service tax or not.

• Whether the cost of lubricants/paints provided during the course of providing any taxable service by an Authorised Service Station would form part of value of taxable service for the purpose of levy of service tax.

• Whether any services provided to customer at the time of purchase of new vehicle is liable to service tax.

• It is clarified that per Section 65(8) of Finance Act, 1994, "Authorised Service Station" means any service station, or centre, authorised by any motor vehicle manufacturer, to carry out any service or repair of any motor car or two wheeled motor vehicle manufactured by such manufacturer. As per Section 65(90) (zo), the taxable service is any service provided to a customer, by any authorised service station, in relation to any service or repair on motor cars or two wheeled motor vehicles, in any manner. Therefore, service tax is leviable only on such services which are provided in relation to motor cars or two wheeled motor vehicles for which the service station is authorised. The intention was also to cover only the authorised service and repair of motor car and two wheeled motor vehicles.

2. During the course of providing service, an authorised service station also replaces engine oil, gear oil and coolants, etc., as per the request of the customer. The price charged by authorised service station for engine oil, gear oil and coolants is towards sale of these consumables to the customer. Therefore, the sale of consumable during course of providing service is akin to sale of parts and accessories and therefore value of such consumables is not includible in the value of taxable services provided value of such consumables is shown separately.

However, there are certain items such as paints used for painting body, etc., during the course of providing service, and form intrinsic part and parcel of service in so much as that these are not distinctly and separately identifiable from the services rendered. Therefore, value of such items, which form intrinsic part of service, is includible in the value of taxable service.

3. The activity of providing Teflon Coating at the time of sale cannot be construed as a service or repair provided by an authorised service station even though the same dealer may also be authorised to carry out after sale services. The authorised sales dealer and authorised service station are appointed to perform two distinct functions for the car manufacturer and therefore the activity performed at the time of sales of vehicle by the dealer is distinct from the service provided by the authorised service station. Normally, authorised service station comes into picture only after vehicle comes on road. Therefore, it is envisaged that any activity of sales dealer at the pre-sale stage or at the time of sale will not come under the purview of service tax.

authorised service station"means any service station, or centre, authorised by any motor vehicle manufacturer

Indian Service Tax

Authorised Service Stations for Motor Cars and Two Wheelers

Effective Date: 16/07/2001

Authority: Notification No. 4/2001-ST, dt. 9/7/2001 (for full text of Notification see under 'Broadcasting').

Rate of Service Tax: 8% from 14/5/2003 (5% upto 13/5/2003) 10% from 10/9/2004 - Cess 2% of 10% = 0.2. Total ST = 10.2%.

Definition

"authorised service station"means any service station, or centre, authorised by any motor vehicle manufacturer, to carry out any service or repair of any motor pt car, light motor vehicle or two wheeled motor vehicle manufactured, by such manufacturer, [Section 65(9)]

Taxable service: Motor Cars and two-wheelers service and repair, in any manner provided by a service station or centre authorised by manufacturer of such motor vehicles.

Value of taxable service: Gross amount charged from the customer towards the cost of parts or accessories, if any, sold to the customer during the course of service or repair of motor cars or two-wheelers shall not be included in the value of this taxable service. However, the reimbursement received by the authorised service stations from manufacturers of such cars or two-wheelers, for carrying out any service of them shall be included in the value of this taxable service.

Exemptions

• See Chapter on "General Exemptions"

• Specific exemptions

• Non-authorised service station

• Sale of consumables like engine oil, gear oil, coolants etc.

• Teflon coating

• Buses, trucks, three wheelers

Person liable to pay: Authorised Service Station.

Scope

Authorised automobile service was brought under the tax net witheffect from 16/7/2001. However, it was restricted only to motorcars and two wheeled motor vehicles. Buses, trucks, maxi cabs etc. were not covered. Provision have been made to widen the scope of authorized automobile service to cover all such vehicles.

Exemption

(Para 2.9.1 of Cir. No. 59/8/2003-ST, dt. 20/6/2003): In case of authorized service stations, maintenance or repair services, commissioning and installation services and photography services it has been provided in the law that the cost of goods and material shall not form part of the value to be subjected to service tax, if evidence (like sale invoice/bill) shows that these goods were sold. Such dispensation has, however, not been provided for other services like commercial coaching and training centers, telecom services. In this regard, a general exemption under Notification No. 12/2003-service Tax, dated 20th June, 2003 has been issued exempting that part of the value of all taxable services from service tax, which represents the cost of goods or material sold by the service provider to the receiver of such services during the course of provision of the taxable services. This exemption would be available only in cases where the sale of such goods is evidenced and the sale value is quantified and shown separately in the invoice. It is also clarified that in case of commercial training and coaching institutes, the exclusion shall apply only to the sale value of standard textbooks, which are priced. Any study material or written text provided by such institute as a part of service which does not satisfy the above criteria will be subjected to service tax.

Head of Account

Sl. Code SCCD Minor-head 004400145 Authorized Service Station, service or repair provided by for Motorcar and Two-Wheeled Motor Vehicle 00440180 Sub-head 00440014501 Tax Collection 00440181 116 Sub-head 00440014502 Other Receipts 00440182 113 Sub-head 00440014503 Deduct Refunds 00440183 118

Main text of Departmental Circular/TN

[Ministry's ENo. B.II!I/2000-TRU dt. 9/7/2001 - Annexure IX]

• As per Section 65 (8), "authorised service station" means any service station, or center, authorized by automobile manufacturer to carry out any service or repair of any motor car or two wheeled motor vehicle manufactured by such manufacturer. The taxable service, as per Section 65 (72) (zo) is any service provided to a customer by an authorized service station, in relation to any service or repair of motor cars or two wheeled motor vehicles.

• Any service or repair provided by an authorized service station in relation to motor cars and two wheeled motor vehicles, will be covered in the ambit of service tax. Examples of taxable services include services provided during warranty period, subsequent services such as routine check of performance of engine and vehicle, engine tuning, engine oil check, gear oil check, wheel alignment, wheel balancing, clutch and brake adjustment wheel rotation cleaning! washing and any repairs undertaken. However cost of parts and accessories supplied during course of repair and servicing of vehicle will not be includible in the taxable value. Such cost should be shown separately in the bill/invoice.

• Authorised service station provides free service in respect of new vehicles during the warranty period on behalf of the manufacturer and they are reimbursed for the same by the manufacturer of such vehicle. In this regard a point has been raised as to whether service tax is leviable on the amount reimbursed to them for carrying out free services. It is clarified that though the authorized service stations are providing free service to the customer during the warranty period, they are being reimbursed service charges for the same by the manufacturer of motor vehicles. The definition for value of taxable service specifically provides that the reimbursement received from the manufacturer of motor vehicles for free service rendered to the customer is includible in the taxable value.

In exercise of the powers conferred by Section 116 of the Finance

Indian Service Tax

Notifications

Effective date

[Notification No. 53/98-ST, dt. 07/10/1998]

In exercise of the powers conferred by Section 116 of the Finance (No.2) Act, 1998 (21 of 1998), the Central Government hereby appoints the 16th October, 1998, as the date on which the Finance Act, 194 (32 of 1994) shall be amended as provided in the said Section 116 and the service tax shall be levied under sub-section 4 and sub-section 5 of Section 66 of the Finance Act, 1994 (32 of 1994).

Case Law

Constitutional validity of service tax on architects was upheld - 2002 (139) ELT 245 (Mad.).

Attention of the Trade and all other concerned is invited that a number of references

Indian Service Tax

Clarifications

Consulting Engineer

[Trade Notice No. 1/98-S.T., dated 5/1/1998 of the Delhi-I Commissionerate)

Sub: Service Tax - 'Architects' not under ambit of services provided by Consulting Engineers.

Attention of the Trade and all other concerned is invited that a number of references have been received from the trade and industry and the field formations as to whether the services rendered by Architects would come under the purview of Service Tax levied on the services provided by consulting engineers.

2. The matter has been carefully examined by the department. As per sub­clause (g) of clause (41) of Section 65 of the Finance Act, 1994, as amended, the taxable service has been defined as "any service provided to a client, by a consulting engineer in relation to advice consultancy or technical assistance in any manner in one or more disciplines of engineering". Clause (11) of the said section defines a consulting engineer as "any professionally qualified engineer or engineering firm who, either directly or indirectly renders any advice, consultancy or technical assistance in any manner to a client in one or more disciplines of engineering. To come under the purview of Service Tax, the service rendered should be in a discipline of engineering and it should be rendered by a professionally qualified engineer or an engineering firm.

3. In this context, it is pertinent to note that there is a separate piece of legislation for architects, namely, The Architects Acts, 1972 which provides for the registration of architects and for matters connected therewith. Under this legislation, a Council of Architecture has been constituted for registration of architects and for governing other matters connected therewith. Any person who wants to practise as an 'architect' has to register himself with the Council of Architecture subject to satisfaction of qualifications prescribed in this regard. The educational qualifications prescribed for registration of architects is a degree or diploma in architecture. Thus, the law itself recognises architects as a distinct or separate profession.

4. The All India Council for Technical Education who were consulted in the matter have clarified that 'architecture' and 'engineering' are two separate disciplines of technical education and these are two separate professions. Consulting Engineers Association of India who were consulted in the matter have stated that though there is overlapping in architectural and engineering services, yet "Architecture" discipline and "Engineering" discipline are two different disciplines and separate educational facilities exist' for both the disciplines.

5. In the light of the facts mentioned above, it is clarified that the term 'Consulting Engineer' will not include 'architects' within its scope and therefore the Service Tax levy on the services rendered by a consulting engineer in any discipline of engineering will not cover the architectural services rendered by architects.

6. It is quite possible that many a time an engineering firm will be providing both engineering services and architectural services and a lump-sum amount is charged for both the services. In such cases service tax will have to be collected on the entire amount charged. However, if separate break-up is given in the bill for engineering services and architectural services, then service tax needs to be paid only the charges for engineering services.

"architect" means any person whose name is, for the time being, entered in the register of architects

Indian Service Tax

Architect

Effective Date: 16/10/1998

Authority: Notification No. 53/98-ST, dt. 07/10/1998 (See at the end of this Chapter).

Rate of Service Tax: 8% from 14/5/2003 (5% upto 13/5/2003) 10% from 10/9/2004 - Cess 2% of 10% = 0.2. Total ST = 10.2%.

Definition

"architect" means any person whose name is, for the time being, entered in the register of architects maintained under Section 23 of the Architects Act, 1972 (20 of 1972) and also includes any commercial concern engaged in any manner, whether directly or indirectly, in rendering services in the field of architecture, [Section 65 (6)].

Taxable service: Architect providing service to a client in his professional capacity in any manner.

Value of taxable service: The gross amount charged by such architect from the client for service rendered in professional capacity in any manner.

Exemptions

• See Chapter on "General Exemptions"

• Specific exemptions

  (i) Interior decorators

  (ii) Consulting Engineer

  (iii) Landscape designers & developers

Person liable to pay: Architect

NB: Also see para 4.6 of T.N. No. 116/98-ST, dt. 15-10-1998 under "Interior Decorators".

Head of Account

S1.Code SCCD Minor-head 004400119 Architect Services 00440071 Sub-head 00440011901 Tax Collection 00440072 119 Sub-head 00440011902 Other Receipts 00440073 112 Sub-head 00440011903 Deduct Refunds 00440074 117

Questions & Answers

Q. Who is an Architect?

Ans. "Architect" is a person whose name is for the time being, entered in the register of architects maintained under section 23 of the Architects Act, 1972 and also includes any commercial concern engaged in any manner, whether directly or indirectly, in rendering services in the field of architecture.

Q. What is the taxable service in case of an Architect?

Ans. In case of an Architect, taxable service is a service provided, to a client, by him in his professional capacity in any manner. The nature and scope of the services rendered by architects are well delineated under the provisions of the Architects Act. Broadly, the work of an architect starts from providing appropriate advice keeping in view the requirements of the client at the preliminary stage of initial sketches, specifications and drawing of plans, and consists of providing detailed drawings, approval of the drawings from the concerned authorities, supervision at each stage of construction, and till the point when the completion certificate is obtained from the authorities.

Q. What is the value of taxable service in case of an Architect?

Ans. Value of the taxable service in relation to the service provided by an architect to a client, is the gross amount charged by such architect from the client for services rendered in professional capacity in any manner.

Q. Whether the registered private surveyors (who are registered under municipality or corporation) come under the Architect's service. Are they liable to pay Service Tax?

Ans. Architects registered under Section 23 of Architect Act, 1972, and providing services like surveyor would attract service tax under Sec.65 (5) of Finance Act, 1994, as amended.

Main text of Departmental Circular/TN

[TN No. 116/98-ST, dt. 15-10-1998 of Hyderabad Commissionerate]

4.1 Under Section 65(5) of the Finance Act, 1994, an "architect" has been defined to mean any person whose name is, for the time being, entered in the register of architects maintained under Section 23 of the Architects Act, 1972 and also includes any commercial concern engaged in any manner, whether directly or indirectly, in rendering services in the field of architecture. The nature and scope of the services rendered by architects are well delineated under the provisions of the Architects Act.

4.2 Broadly, the work of an architect starts from providing appropriate advice keeping in view the requirements of the client at the preliminary stage of initial sketches, specifications and drawing of plans, and consists of providing detailed drawings, approval of the drawings from the concerned authorities, supervision at each stage of construction, and till the point when the completion certificate is obtained from the authorities.

4.3 The services rendered by an architect are of a very diverse nature and are spread over a fairly long period of time. At the time when an architect is actually engaged for a particular project, letters (contract) is exchanged for the same between the architect and the person engaging him. The contract/agreement details the entire scope of the services to be rendered by the architect, including the terms and conditions of employment and the payment schedule for the service rendered by the architect. The "taxable service" means any service provided to a client by the architect in his professional capacity in any manner.

In exercise of the powers conferred by Section 88 of the Finance Act, 1997

Indian Service Tax

Notifications

Effective date

[Notification No. 19/97-S.T., dt 26/6/1997]

In exercise of the powers conferred by Section 88 of the Finance Act, 1997 (26 of 1997), the Central Government hereby appoints the 1st day of July, 1997, as the date on which the service tax on taxable services specified in sub­clauses (1) and (P), of clause (41) of Section 65 of the Finance Act, 1994 (32 of 1994) shall come into force.

Exemption to Excess Commission

[Notification No. 22/97-S.T., dt. 26/6/1997]

In exercise of the powers conferred by Section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts from the levy of service tax, that portion of the value of taxable service referred to in sub-clause (1) of clause (41) of Section 65 of the said Act which is in excess of the commission received by the air travel agent from the airline for booking of passage for travel by air.

2. This notification shall come into force on the 1st day of July, 1997.

Exemption to Diplomatic Missions

[Notification No. 51/98-ST, dt. 15/06/1998]

In exercise of the powers conferred by Section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services provided by an air travel agent in relation to the booking of passage for travel by air to the Diplomatic Missions specified in column (2) of the schedule hereto annexed from the whole of service tax leviable thereon under Section 66 of the said Act.

Schedule

Sl. No. Name of the Diplomatic Missions Sl. No. Name of the Diplomatic Missions 1. Australia 18. Phillippines 2. Argentina 19. Qatar 3. Brunei 20. Singapore 4. Botswana 21. Vietnam 5. Bahrain 22. Uzbekistan 6. Brazil 23. Zambia 7. Cuba 24. Iraq 8. China 25. Japan 9. Cambodia 26. Kazakshtan 10. Ethiopia 27. Mexico 11. Korea (Republic) 28. Palestine 12. Korea (Democratic Peoples Republic) 29. Sweden 13. Lebanon 30. Sri Lanka 14. Morocco 31. United States of America 15. Finland 32. Holy See 16. Nepal 33. Sahrawi Arab Democratic 17. Panama

Case Law

Service of advice i.e. availability of flights, timings, flight connection is taxable - (2002) 121 Taxmann 298 (Mad.).

avel Agent who is receiving the commission from the Airlines for booking of Air Travel

Indian Service Tax

Clarifications

[Letter C. No. CE/20/ST/Air Travel/97, dt. 27/8/1997 of the New Delhi Commissionerate]

Please refer to this office letter No. CE/20/ST/Air Travel/97/2794 & 2795, dt. 13/4/1997 on the above subject by which clarification on various queries raised therein was given. The issue of collecting Service Tax by GSA/IATA etc. were again examined on the basis of representation made and views expressed in the meetings held with the Association etc.

After ascertaining the factual position of accounting, it has been decided that the person responsible for collecting the Service Tax and getting registration will be that Air Travel Agent who is receiving the commission from the Airlines for booking of Air Travel after depositing the ticket money and rendering the account of the sale to the airlines concerned. The details of the commission payable by airlines is indicated in the agency agreement entered into between Airlines and Air Travel Agents.

Therefore GSA/IATA Agents in respect of tickets issued by him directly on collection of fare, who are getting commission from airlines for the services rendered by them is to collect service tax. Sub-agent, su6 sub-agent who are not getting commission as also not making out tickets directly from airlines are not required to collect service tax and get registration from service tax authority of the Central Excise Department.

Regarding chargeability of service tax on free ticket, since no fare is charged or commission is paid by airlines to Air Travel Agent, therefore no service tax on such transaction is payable.

Regarding taking registration by each branch of Air Travel Agent having registered office at Delhi, it is clarified that those GSA/Air Travel Agent, who are having their registered/Administrative office at Delhi and having branch offices in the State of Haryana, a single registration may be taken for registered office at Delhi, with Service Tax Cell of Central Excise, Delhi-I Commissionerate, Central Revenue Building, I.P. Estate, New Delhi: They will centrally account for all service tax to this cell for all service tax due in Delhi and State of Haryana.

Earlier clarification issued on this subject not in conformity with the above clarification will be considered as null and void.

"air travel agent" means any person engaged in providing any service connected

Indian Service Tax

Air Travel Agent

Effective

Date: 01/07/1997

Authority: Notification No. 19/97-ST, dt. 26/06/1997 (See at the end of this Chapter).

Rate of Service Tax: 8% from 14-5-2003 (5% upto 13/05/2003) 10% from 10/09/2004 - Cess 2% of 10% = 0.2. Total ST = 10.2%.

Definition

"air travel agent" means any person engaged in providing any service connected with the booking of passage for travel by air, [Section 65 (4)]

Taxable service: Air travel passenger booking services provided by an air travel agent in relation to the booking of the passage for travel by air.

Value of taxable service: Gross amount charged by air travel agent from the customer for booking of passage by travel by air excluding the air fare but including the commission, if .any, received from the airline in relation to such booking.

Exemptions

• See chapter on "General Exemptions"

• Specific Exemptions

• Free ticket

• Cancelled ticket

• That portion which is in excess of commission, sub-agents, booking for travel by sea/rail/road.

Person liable to pay

Air Travel Agent

Head of Account

Minor- head 004400109 Air travel Agent Services Sl.Code SCCD Sub-head 00440010901 Tax Collection 00440032 115 Sub-head 00440010902 Other Receipts 00440033 116 Sub-head 00440010903 Deduct Refunds 00440034 113

Questions & Answers

Q. Who is an Air Travel Agent?

Ans. Air Travel Agent is a person engaged in providing any service connected with the booking of passage for travel by air.

Q. What is taxable service for an air travel agent?

Ans. In case of air travel agent, the taxable service is the service provided to the customer in relation to the booking of passage for travel by air.

Q. What is the value of taxable service in case of air travel agent?

Ans. In case of air travel agent, the value of taxable service is the gross amount charged by such agent from the customer for services in relation to the booking of passage for travel by air excluding the air fare but including the commission, if any received from airline in relation to such booking.

The air travel agents receive certain commission for domestic tickets and for international tickets from the airlines. The details of the commissions payable by the airlines is indicated in the agency agreement entered into between the air line and the air travel agent. The travel agent files a fortnightly return to the airlines indicating the details of tickets booked, the fare collected, the commission earned along with other particulars. After adjusting the commission, he remits the balance amount to the air lines. This fortnightly return would be the basis for assessment of Service Tax in respect of air travel agents.

However, an option has been given to the air travel agents to pay the Service Tax at the rate of 0.25% of the basic fare in the case of domestic tickets and 0.5% of the basic fare in the case of international tickets towards discharge of their Service Tax liability instead of paying tax at the rate of 5% on the actual commission received from the air lines. The basic fare is defined as that part of the fare on which commission is payable by the air lines.

Q. What is the procedure to be followed for getting refund of Service tax in cases where the ticket booked is cancelled at a later stage?

Ans. Cancellation or modification of tickets is a common and frequent feature in air travel. The air travel agent in his fortnightly return gives the particulars of tickets cancelled or modified and adjusts the commission accordingly subject to final approval by the airlines. Since the commission is adjusted automatically and the Service Tax is paid on the net commission received, the question of separately claiming refund of Service Tax may not arise.

Q. Is the service provided by Air Travel Agent in relation to the booking of passage for travel by air to U.N or International organisation or the Diplomatic Missions exempted from payment of service tax?

Ans. Yes. The service provided by an air Travel Agent in relation to the booking of passage for travel by air to UN, other international organisation as well as certain specified Diplomatic Missions are exempted from payment of Service Tax. (Refers Notification No. 51/98 Service Tax dated 15.06.98)

Q. If tickets are issued against international credit card, whether the Air Travel Agent is required to pay Service Tax on such services provided to the International Card holder irrespective of the fact whether he or she is an Indian, NRI or Foreigner?

Ans. Card, they would be responsible for payment of the Service Tax to the Govt. irrespective of the fact the receiver of the service, i.e international credit card holder is an Indian or NRI or Foreigner.

Q. Would Service Tax be chargeable on modification charges recovered by the Air Travel Agent?

Ans. The value of taxable service in relation to service provided by an Air Travel Agent to a customer is the gross amount charged by such agent from the customer. The modification charges recovered by the Air Travel Agent are included in the gross amount charged from the customer. Hence, these are chargeable to service tax.

Main text of Departmental Circular/TN

[TN No. 6/97-Service Tax, date: 01/07/1997 of Mumbai I]

3.1 As regards the services rendered by air travel agents, the person responsible for collecting the services tax will be the air travel agents and the measure of the tax is the commission received by the air travel agent from the air lines for booking of air tickets.

3.2 It is understood that the air travel agents receive certain commission for domestic tickets and for international tickets from the airlines. The details of the commissions payable by the air lines is indicated in the agency agreement entered into between the air line and the air travel agent. the travel agent files a fortnightly return to the airlines indicating the details of tickets booked, the fare collected the commission earned along with other particulars. After the commission earned along with other particulars. After adjusting the commission, he remits the balance amount to the air lines. This fortnightly return could be made the basis for assessment of service tax in respect of air travel agents.

3.3 However, an option is also being provided to the air travel agent to pay the service tax at the rate of 0.25% of the basic fare in the case of domestic tickets and 0.5% of the basic fare in the case of international tickets towards discharge of his service tax liability instead of paying the tax @ 5% on the actual commission received from the air lines. (Notification No. 20/97-ST refers). Basic fare is defined as that part of the fare on which commission is payable by the air lines.

3.4 Cancellation or modification of tickets is a very common and frequent feature in air travel. The air travel agent in his fortnightly return gives the particulars of tickets cancelled or modified and adjusts the commission accordingly subject to final approval by the airlines. Since the commission is adjusted automatically and the service tax is paid on the net commission received, the question of separately claiming refund of service tax may not arise. However, care may be taken to ensure that no adjustment of Commission for the period prior to 1st July, 1997 (when no service tax was leviable) is done from the commission payable from 1st July, 1997 onwards leading to escapement of service tax on the services rendered from 1st July.