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.