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Service tax valuation issues pertaining to Customs House Agents Service CIRCULAR NO 119/13/2009-ST, Dated : December 21, 2009

eris — Fri, 12 Mar 2010 15:00:40 +0000

CIRCULAR NO 119/13/2009-ST, Dated : December 21, 2009

Subject : Service tax valuation issues pertaining to Customs House Agents Service-reg.

Customs House Agent’s (CHA) Services are taxable since 15th June 1997. As per the definition (section 65 (105) (h) of the Finance Act, 1994) the ‘taxable service’ means any service provided or to be provided to any person, by a custom house agent in relation to the entry or departure of conveyance or the import or the export of goods and the term ‘service provider’ shall be construed accordingly. Further, as per definition appearing under section 65(35) of the aforesaid Act, a ‘custom house agent’ means a person licensed, temporarily or otherwise, under the regulations made under sub-section (2) of section 146 of the Customs Act, 1962. The Custom House Agents Licensing Regulations, 2004, made under the said section, prescribe the procedure for grant of license by the customs department. They (regulation no. 13) also place obligations on such license holders during their interface with customs department pertaining to customs formalities for conveyance or imported or export goods. In sum, the above provisions read in harmony, show that the activities of a CHA i.e. pertaining to customs formalities in relation to the entry or departure of conveyance or the import or the export of goods, is subjected to service tax under CHA services.

02. While the principal job of a CHA is to get the import or export consignments cleared through customs, they, being the ‘persons on the spot’, also at times arrange services for packing, unpacking, loading, unloading, bringing or removing the goods to or from the customs area, vessels or aircrafts for their customers (i.e. importers or exporters). These services are provided by different agencies such as Port Trust, Steamer Agents, Cargo Handlers, Warehouse-keepers, Packers, Goods Transport Agents. Normally the CHAs initially pay the service charges to these agencies and later recover these charges from the customer along with their own charges CHAs. Similar arrangement can occur for payment of statutory levies like Custom Duties, Port charges, Cesses etc. leviable on the said goods.

03. Issue was raised at the initial stage itself as to whether the charges, which are said to be paid by the CHAs and later recovered from the customers (i.e. reimbursable charges) should be added to the value for charging service tax from CHAs. Through the circular F.No.B-43/1/97-TRU, dated 06.06.1997 the Board had clarified that the service tax would be charged on the ‘service charges only’ and statutory levy and other reimbursable charges would not be included in the taxable value. It was also provided that in case there are lump sum payments towards the reimbursable as well as service charges, service tax would be charged on 15% of the gross value only.

04. In 2006 (w.e.f. 19.04.2006) the Service Tax (Determination of Value) Rules were prescribed. Consequently all previous circulars relating to valuation were withdrawn. The said rules brought in the concept of ‘pure agent’ and provided that expenditure or costs incurred by the service provider as pure agent alone will be eligible for exclusion from taxable value.

05. It is reported that disputes have arisen on the issue of inclusion of such reimbursable charges, which are currently pending at various stages of dispute settlement mechanism. Certain field formations have also issued communications, directing that charges on certain activities incurred by CHAs are not covered under exclusions available to ‘pure agent’. It is also reported that divergent practices as regards the records & documentations, are being followed by the CHAs in relation to the charges for receiving services from other service providers as well as to their billings to their customers. This has added to the conflict and litigation.

06. With a view to resolve the disputes and to bring it clarity, the issue has been examined. The divergent practices followed at different places and lack of consistency in the manner of maintaining records and issuance of documents by the CHAs, make it impossible to lay down any specific guidelines or issue any specific directions. In the circumstances, it is clarified that essentially, the exclusion should be allowed to such charges from the taxable value of CHA services, where all the following conditions are satisfied,-

a) The activity/service for which a charge is made, should be in addition to provision of CHA service (as mentioned in paragraph 1);

b) There should be arrangement between the customer & the CHA which authorizes or allows the CHA to (i) arrange for such activities/ services for the customer; and (ii) make payments to other service providers on his behalf;

c) The CHA does not use the activities /services for his own benefit or for the benefit of his other customers;

d) The CHA recovers the reimbursements on ‘actual’ basis i.e. without any mark-up or margin. In case of CHA includes any mark-up or profit margin on any service, then the entire charge (and not the mark-up alone) for that particular activity/ service shall be included in the taxable value;

e) CHA should provide evidence to prove nexus between the other (than CHA) services provided and the reimbursable amounts. It is not necessary such evidence should bear the name or address of the customer. Any other evidence like BE No./Container No./ BL No./ packing lists is acceptable for the establishment of such nexus. Similar would be the case for statutory levies, charges by carriers and custodians, insurance agencies and the like;

f) Each charge for separate activities/services is to be covered either by a separate invoice or by a separate entry in a common invoice (showing the charges against each entry separately) issued by the CHA to his customer. In the latter case, if certain entries do not satisfy the conditions mentioned herein, the charges against those entries alone should be added back to the taxable value;

g) Any other miscellaneous or out of pocket expenses charged by the CHA would be includable in the taxable value for the purposes of charging tax on CHA services.

07. The conditions mentioned at paragraph (06) would be applicable for services provided with effect from 19th April 2006, i.e. after the introduction of the valuation rules. For the prior period, the taxable value should be determined in accordance with the prevailing instructions issued Board as referred to foregoing paragraph 03 of this circular. Any communication issued by any of the subordinate offices which are contrary to the conditions referred to in paragraph 06 of this circular, or as the case may be, the prevailing Boards circulars stands superceded to the extent of the contradiction.

08. The pending disputes may be settled in terms of this circular.

09. Hindi version follows.

F.No.332/36/2008-TRU

(Gautam Bhattacharya)
Joint Secretary (Tax Research Unit)

Budget 2010-11 Service Tax – New Services included in the list of taxable services

eris — Sat, 27 Feb 2010 06:34:58 +0000

New Services included in the list of taxable services:
1. Services of promoting, marketing or organizing of games of chance, including lottery.
2. Health services undertaken by hospitals or medical establishments for the employees of business organizations and health services provided under health insurance schemes offered by insurance companies.
3. Services provided for maintenance of medical records of employees of a business entity
4. Promoting a ‘brand’ of goods, services, events, business entity etc.
5. Services of permitting commercial use or exploitation of any event organized by a person or an organization.
6. Services provided by Electricity Exchanges
7. Services related to two types of copyrights hitherto not covered under existing taxable service ‘Intellectual Property Right (IPR)’, namely, that on (a) cinematographic films and (b) sound recording.
8. Special services provided by builder etc. to the prospective buyers such as providing preferential location or external or internal development of complexes on extra charges.

(The above changes will come into effect from a date to be notified after the enactment of the Finance Bill, 2010.)

Enlargement in scope of specified taxable Services
1. Services provided in an airport or port
2. Auctioneer’s service
3. Unit Linked Insurance Plans
4. Transport of passengers by air service
5. IT Software Service
6. Redefining the scope of commercial training and coaching service
7. Expanding the scope of Sponsorship Service
8. Service tax on construction services
9. Renting of immovable property service
10.Renting of vacant land
(The above changes will come into effect from a date to be notified after the enactment of the Finance Bill, 2010.)

Service Tax – Summary of changes made in Budget 2010-11

eris — Fri, 26 Feb 2010 09:18:58 +0000

I. SERVICE TAX IS BEING IMPOSED ON THE FOLLOWING SPECIFIED SERVICES:

1) Service of permitting commercial use or exploitation of any event organized by a person or organization.

2) The existing taxable service ‘Intellectual Property Right (IPR)’ excludes copyright from its scope. Copyrights on (a) cinematographic films and (b) sound recording are being brought under the ambit of service tax. However, copyright on original literary, dramatic, musical and artistic work would continue to remain outside the scope of service tax.

3) Service tax on the following health services:

(a) health check up undertaken by hospitals or medical establishments for the employees of business entities; and

(b) health services provided under health insurance schemes offered by insurance companies.

(The tax on these health services would be payable only if the payment for such health check up or preventive care or treatment etc. is made directly by the business entity or the insurance company to the hospital or medical establishment).

4) Service provided for maintenance of medical records of employees of a business entity.

5) Service provided by Electricity Exchanges.

6) Certain additional services provided by a builder to the prospective buyers such as providing preferential location or external or internal development of complexes on extra charges. However, service of providing vehicle-parking space would not be subjected to tax.

7) Service of promoting of a ‘brand’ of goods, services, events, business entity etc.

8. The promotion, marketing or organizing of games of chance, including lottery, is being introduced as a separate service. Consequently, the Explanation in provision relating to Business Auxiliary Service is being deleted.

The above changes will come into effect from a date to be notified, after the enactment of Finance Bill, 2010.

II. SCOPE OF CERTAIN EXISTING SERVICES IS BEING EXPANDED OR ALTERED AS FOLLOWS:

1) The scope of air passenger transport service is being expanded to include domestic journeys, and international journeys in any class.

2) At present, in the case of Information Technology Software Service the levy of tax is limited only to cases where IT software is used for furtherance of business or commerce. The scope of the taxable service is being expanded to cover all cases irrespective of its use.

3) In the case of ‘Commercial training or coaching’ service, an Explanation is being added to clarify that the term ‘commercial’ in the context of this service would mean any training or coaching, which is provided for a consideration, whether or not for profit. This change is being given retrospective effect from 01.07.2003.

4) In the definition of ‘Sponsorship Service’, the exclusion relating to sponsorship pertaining to sports is being removed.

5) In the ‘Construction of complex service’, it is being provided that unless the entire consideration for the property is paid after the completion of construction (i.e. after receipt of completion certificate from the competent authority), the activity of construction would be deemed to be a taxable service provided by the builder/promoter/developer to the prospective buyer and theservice tax would be charged accordingly.

6) Amendments are being made in the definition of the ‘Renting of immovable property service’ to,-

(i) provide explicitly that the activity of ‘renting’ itself is a taxable service. The change has been given retrospective effect from 01.06.2007; and

(ii) levy service tax on rent of vacant land where there is an agreement or contract between the lessor and lessee for undertaking construction of buildings or structures on such land for furtherance of business or commerce during the tenure of the lease.

7) Definitions of ‘Airport Services, ‘Port services’ and ‘Other port services’ are being amended to provide that,-

(a) all services provided entirely within the airport/port premises would be classified under these services; and

(b) an authorization from the airport/port authority would not be a pre-condition for taxing these services. 21

8. An explanation is being added in ‘Auctioneer’s service’ to clarify that the phrase ‘auction by government’ means an auction involving sale of government property and not when the government acts as an auctioneer for sale of the private property.

9) Definition of ‘Management of Investment under ULIP Service’ is being amended to provide that the value of the taxable service for any year of the operation of policy shall be the actual amount charged by the insurer for management of funds under ULIP or the maximum amount of fund management charges fixed by the Insurance Regulatory and Development Authority (IRDA), whichever is higher.

The above changes will come into effect from a date to be notified, after the enactment of Finance Bill, 2010.

III. AMENDMENTS IN ACT:

Chapter V of the Finance Act, 1994 is being amended to,-

a) insert an explanation in sub-section (3) of Section 73 to clarify that no penalty shall be imposed where service tax along with interest has been paid before issuance of notice by the department under this sub-section.

b) provide definition of the term ‘business entity’ to include an association of persons, body of individuals, company or firm but not an individual.

The above changes at (a) will come into effect from a date of enactment of the Finance Bill, 2010 and (b) from a date to be notified after the enactment of Finance Bill, 2010.

IV. EXEMPTIONS:

1) Statutory taxes charged by the foreign governments are being excluded from taxable value for levy of service tax under the Air passenger transport service.

2) Exemption from service tax is being provided to services relating to ‘Erection, Commissioning or Installation’ of,-

(a) Mechanized Food Grain Handling Systems etc.;

(b) Equipment for setting up or substantial expansion of cold storage; and

(c) Machinery/equipment for initial setting up or substantial expansion of units for processing of agricultural, apiary, horticultural, dairy, poultry, aquatic, marine or meat products.

3) Pre-packaged I.T. software, with the license for right to its use, is being exempted from service tax, subject to specified conditions.

4) At present exemption from service tax is available to transport of fruits, vegetables, eggs or milk by road by a goods transport agency. The scope of exemption is being expanded to include food grains and pulses in the list of exempted goods.

5) Exemption from service tax is being provided to Indian news agencies under ‘Online Information and Database Retrieval Service’ subject to specified conditions.

6) Exemption from service tax is being provided to the ‘Technical Testing and Analysis Service’ and ‘Technical Inspection and certification service’ provided by Central and State seed testing laboratories, and Central and State seed certification agencies.

7) Exemption from service tax is being provided to the transmission of electricity. The above changes will come into effect immediately.

V. WITHDRAWAL OR AMENDMENTS OF EXEMPTIONS:

1) Exemption from service tax on ‘Service provided in relation to transport of goods by rail’ is being withdrawn. The levy will come into effect from 01.04.2010.

2) Exemption from service tax, presently available to Group Personal Accident Insurance Scheme provided by Govt. of Rajasthan to its employees, under General Insurance Service is being withdrawn.

3) The exemption from service tax on ‘Commercial training or coaching service’ is being restricted to vocational training courses in the designated Trades notified under the Apprentices Act, 1961.

The above changes, except at S. No.1, will come into effect immediately.

VI. AMENDMENTS IN RULES AND NOTIFICATIONS:

1) Export of Services Rules, 2005 and Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 are being amended so as to move some of the specified taxable services from one category to another.

2) In the Export of Services Rules, 2005, the condition prescribed i.e. ‘such service is provided from India and used outside India’ is being deleted.

3) Notification No. 1/2002-ST dated 01.02.2002 is being superceded by another notification to provide that the construction and operation of installations, structures and vessels for the purposes of prospecting or extraction or production of mineral oils and natural gas in the Exclusive Economic Zone and the Continental Shelf of India and for supply of any goods connected with these activities would be within the purview of the provisions of Chapter V of Finance Act, 1994. Suitable changes are being made in the Export of Services Rules, 2005 and Taxation of Services (Provided from Outside India and Received in India) Rules, 2006.

4) Notification No. 5/2006-CE (NT) is being amended and given partial retrospective effect to remove the bottlenecks in refund of accumulated credit to the exporters.

The above changes will come into effect immediately.

Service Tax Rate retained at 10% – Union Budget 2010

eris — Fri, 26 Feb 2010 07:25:32 +0000

Service Tax Rate retained at 10% – Union Budget 2010. More services to be brought under service tax net.

Posted via web from Eris Consulting Private Limited

Circuclar No. 120/01/2010 – ST

eris — Fri, 22 Jan 2010 09:15:32 +0000

Circular No. 120/01/2010-ST

F.No.354/268/2009-TRU

Government of India

Ministry of Finance

Department of Revenue

(Tax Research Unit)

*****

New Delhi dated the 19th January, 2010.

To

            All Chief Commissioners of Central Excise,

            All Chief Commissioners of Customs,

            All Chief Commissioners of Customs &Central Excise,

            Director General of Service Tax,

            All Commissioners of Service Tax,

            Commissioner (Service Tax), CBEC.

Madam/Sir,

Subject: Problems faced by exporters in availing refund of excess credit – regarding

            CENVAT Credit Rules, 2004 permit taking of credit of inputs and input services which are used for providing output services or output goods.   In order to zero-rate the exports, Rule 5 of CENVAT Credit Rules, 2004 provides that such accumulated credit can be refunded to the exporter subject to stipulated conditions. Notification No. 5/2006-CE (NT) dated 14.03.2006 provides the conditions, safeguards and limitations for obtaining refund of such credit.

2.         It has been represented by the exporters of services (mainly the call centres or the BPOs) that they are facing difficulties in getting refund under the said notification. In order to ascertain the causes for such delay a number of meetings were held with the refund sanctioning authorities. During these meetings the officers pointed out the following legal/procedural impediments partly responsible for such delays:

(a)     The major reason causing delay in granting refunds as well as rejecting the claims is that as per the wordings of the notification, refund is permitted of duties/taxes paid only on such inputs/input services which are either used in the manufacture of export goods or used in providing the output services exported. As against this, the phrases used in the CENVAT Credit Rules permit credit of services used “whether directly or indirectly, in or in relation to the manufacture of final product” or “for providing output service”.   The field formations tend to take the view that for eligibility of refund, the nexus between inputs or input services and the final goods/services has to be closer and more direct than that is required for taking credit. Many refund claims are being rejected on this ground.

(b)     Even if a nexus is considered acceptable, the officers processing the refund claims find it difficult to co-relate goods or services covered under a particular invoice with a specific consignment of export goods or specific instance of export of service.

(c)     As per the notification, the claims are to be filed quarterly. For large exporters, the procurement of inputs/input services in a quarter is substantial resulting in each refund claim being accompanied with hundreds of invoices. Verification of these documents with corroborative documents showing exports (such as export invoices, bank certificates, shipping bills) consumes a long time;

(d)     Though the notification prescribes that refund claims should be filed quarterly in a financial year, it is not clear whether the refund is eligible only of that credit which is accumulated during the said quarter or the accumulated credit of the past period can also be refunded; and

(e)     In certain cases, the invoices accompanying the refund claim are incomplete in as much as either the description of service or its classification is not mentioned. In some cases, even the name of the receiver of the inputs/input services is also not mentioned.

3.         The matter has been examined. At the outset it is necessary to understand that the entire purpose of Notification No. 5/2006-CX (NT) is to refund the accumulated input credit to exporters and zero-rate the exports. Accumulated credit and delayed sanction of refund causes cash flow problems for the exporters.   Therefore, the sanctioning authorities are directed to dispose of the refund claims expeditiously based on the following clarifications to the issues raised in paragraph 2 above.

3.1       Use of different phrases in rules and notification [para 2(a)]:

3.1.1   The primary objection indicated by the field formations is that the language of Notification No. 5/2006-CX (NT) permits refund only for such services that are used in providing output services. In other words, the view being taken is that to be eligible for refund, input services should be directly used in the output service exported.   As regards the extent of nexus between the inputs/input services and the export goods/services, it must be borne in mind that the purpose is to refund the credit that has already been taken. There cannot be different yardsticks for establishing the nexus for taking of credit and for refund of credit. Even if different phrases are used under different rules of CENVAT Credit Rules, they have to be construed in a harmonious manner. To elaborate, the definition of input services for manufacturer of goods, as given in Rule 2 (l) (ii) of CENVAT Credit Rules, 2004, includes within its ambit all services used “in or in relation to the manufacture of final products” and includes services used “directly or indirectly”. Similarly Rule 2 (l) (i) of CENVAT Credit Rules also gives wide scope to the input services for provider of output services by including in its ambit services “used….for providing an output service”.   Similar is the case for inputs.

3.1.2   Therefore, the phrase, “used in” mentioned in Notification No. 5/2006-CX (NT) to show the nexus also needs to be interpreted in a harmonious manner.   The following test can be used to see whether sufficient nexus exists. In case the absence of such input/input service adversely impacts the quality and efficiency of the provision of service exported, it should be considered as eligible input or input service.   In the case of BPOs/call centres, the services directly relatable to their export business are renting of premises; right to use software; maintenance and repair of equipment; telecommunication facilities; etc.   Further, in the instant example, services like outdoor catering or rent-a-cab for pick-up and dropping of its employees to office would also be eligible for credit on account of the fact that these offices run on 24 x 7 basis and transportation and provision of food to the employees are necessary pre-requisites which the employer has to provide to its employees to ensure that output service is provided efficiently. Similarly, since BPOs/call centres require a large manpower, service tax paid on manpower recruitment agency would also be eligible both for taking the credit and the refund thereof. On the other hand, activities like event management, such as company-sponsored dinners/picnics/tours, flower arrangements, mandap keepers, hydrant sprinkler systems (that is, services which can be called as recreational or used for beautification of premises), rest houses etc. prima facie would not appear to impact the efficiency in providing the output services, unless adequate justification is shown regarding their need.

3.2       One-to-one co-relation between inputs and outputs and scrutiny of voluminous record [para 2(b) & (c) above]:

3.2.1   Similar problem of co-relation and scrutiny of large number of documents was being faced in another scheme [Notification No. 41/2007-ST dated 06.10.2007] which grants refund of service tax paid on services used by an exporter after the goods have been removed from the factory. In Budget 2009, the scheme was simplified by making a provision of self-certification [Notification No. 17/2009-ST] whereunder an exporter or his Chartered Accountant is required to certify the invoices about the co-relation and the nexus between the inputs/input services and the exports. The exporters are also advised to provide a duly certified list of invoices. The departmental officers are only required to make a basic scrutiny of the documents and, if found in order, sanction the refund within one month. The reports from the field show that this has improved the process of grant of refund considerably. It has, therefore, been decided that similar scheme should be followed for refund of CENVAT credit under notification No. 5/2006-CE (NT). The procedure prescribed herein should be followed in all cases including the pending claims with immediate effect.

3.2.2   Procedure: The exporter should, alongwith the refund claim, file a declaration containing the following details:

(Rs. in lakh)

The declaration should be certified by a person authorized by the Board of Directors (in the case of a limited company) or the proprietor/partner (in case of firms/partnerships) if the amount of refund claimed is less than Rs.5 lakh in a quarter. In case the refund claim is in excess of Rs.5 lakh, the declaration should also be certified by the Chartered Accountant who audits the annual accounts of the exporter for the purposes of Companies Act, 1956 (1 of 1956) or the Income Tax Act, 1961 (43 of 1961), as the case may be.

The Assistant or Deputy Commissioner may, after verification of the fact that the input credit has been correctly claimed, sanction the refund on the basis of the declaration. In case there is a doubt about the correctness of the claim of CENVAT credit on any service, the undisputed amount may be refunded and the balance claim may be decided after following the dispute settlement process.

3.3       Quarterly refund claims [para 2(d) above]:

            As regards the quarterly filing of refund claims and its applicability, since no bar is provided in the notification, there should not be any objection in allowing refund of credit of the past period in subsequent quarters. It is possible that during certain quarters, there may not be any exports and therefore the exporter does not file any claim. However, he receives inputs/input services during this period. To illustrate, an exporter may avail of Rs.1 crore as input credit in the April – June quarter. However, no exports may be made in this quarter, so no refund is claimed. The input credit is thus carried over to the July-September quarter, when exports of Rs.50 lakh and domestic clearances of Rs.25 lakh are made. The exporter should be permitted a refund of Rs.66 lakh (as his export turnover is 66% of the total turnover in the quarter) from the Cenvat credit of Rs.1 crore availed in April-June quarter. The illustration prescribed under para 5 of the Appendix to the notification should be viewed in this light. However, in case of service providers exporting 100% of their services, such disputes should not arise and refund of CENVAT credit, irrespective of when he has taken the credit, should be granted if otherwise in order.    Such exporters may be asked to file a declaration to the effect that they are exporting 100% of their services, and, only if it is noticed subsequently that the exporter had provided services domestically, the proportional refund to such extent can be demanded from him.



3.4       Incomplete invoices [para 2(e) above]:

            In case of incomplete invoices, the department should take a liberal view in view of various judicial pronouncements by Courts. It had earlier been prescribed in circular No.106/09/2008-ST dated 11.12.2008 that the invoices/challans/bills should be complete in all respect. This circular was issued with reference to notification No.41/2007 dated 06.10.2007 as specific services eligible for refund under the notification has been specified. Thus, a stricter requirement exists under the said notification for ascertaining the actual service which has been used in the export of goods. In the case of refund under Rule 5, (i) so far as the nature of the service which has been received by the exporter can be ascertained; (ii) tax paid therein is clearly mentioned; and (iii) other details as required under rule 4(a) are mentioned, the refund should be allowed if the input service has a nexus with the service/goods exported as discussed earlier. In any case, the suggested Chartered Accountant’s certificate should clearly bring out the nature of the service and this will assist the officer in taking a decision.

4.         The instructions contained in this circular should be implemented with immediate effect and the pending claims may be disposed of accordingly.   It is expected that with the clarifications provided and liberalization of procedure, most of the impediments to smooth and expeditious disposal of exporters’ claims for refund of accumulated credit would be removed.   The Board, therefore, expects that the concerned refund sanctioning authorities should decide all claims of exporters within 30 days of their receipt as has been prescribed in notification No. 17/2009-ST.   Any lapse in this regard would be viewed seriously.    In case of any doubt, an immediate reference may be made to the Board.

Yours faithfully,

(Roopam Kapoor)

Officer on Special Duty (TRU)

Tel: 23095590

via servicetax.gov.in

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Apex court turns down govt plea over service tax on shipowners

eris — Fri, 22 Jan 2010 09:09:07 +0000

Apex court turns down govt plea over service tax on shipowners

Indu Bhan
Posted: Thursday, Jan 21, 2010 at 2236 hrs IST
Updated: Thursday, Jan 21, 2010 at 2236 hrs IST

New Delhi: The Supreme Court has dismissed the Centre’s plea challenging the Bombay High Court ruling that restrained it from levying service tax from Indian National Shipowners Association for services received abroad between March 2002 and April 2006.

The high court had held that services received by vessels and ships outside India prior to April 18, 2006, from persons who are not residents of India or are outside India cannot be taxed.

A Bench headed by Justice SH Kapadia dismissed the Centre’s plea that challenged the high court verdict that held as unsustainable the levy of service tax on a person who is resident of India but receives services from outside India prior to insertion of Section 66A in the Finance Act, 1994.

It had earlier issued notice to the Indian National Shipowners Association, the apex body of shipping lines, Central Board of Excise and Customs and others on the levy of service tax.

In view of Section 66A, offshore services cannot be subjected to service tax prior to April 18, 2006, the high court said, adding that before enactment of Section 66A, there was no authority vested by law in the revenue to levy service tax on a person who was resident in India and received services outside India.

According to the petition, the high court was not right in holding that there was no authority vested by law to levy service tax from a resident Indian who has received services outside India before the enactment of Section 66A.

Opposing the Centre’s plea, the association in its reply filed through counsel Tarun Gulati said that the taxable event under the provisions of the Finance Act was the rendering of the service, and if the taxable event occurred outside the territories to which the Act applied, no service tax can be levied.

“If the provisions of the Act do not authorise levy of a tax, such tax cannot be collected merely by the prescription of a provision providing for collection of the tax. A tax which is not leviable under the charging provision is unauthorised, illegal and liable to be struck down,” it added.

via financialexpress.com

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Circular No. 115/09/2009 – ST – Service tax on commission paid to Managing Director / Directors by the company

eris — Sun, 02 Aug 2009 00:25:48 +0000

Circular No. 115/09/2009 – ST

Dy. No. 324/Comm (ST)/2008

Government of India

Ministry of Finance

Department of Revenue

Central Board of Excise and Customs

***

New Delhi, 31^st July 2009

Subject: Service tax on commission paid to Managing Director / Directors by the company -reg

**********

Below mentioned issues have been referred to the Board seeking clarifications,-

(i) applicability of service tax under ‘Business Auxiliary service’ on commission paid to Managing Director / Directors (whole time, or Independent) by the company,

(ii) applicability of service tax on Independent Directors who are part of the Board of Directors under ‘Management Consultant service’.

2. Both the matters have been examined by the Board and the clarifications are as under, -

(i) Some Companies make payments to Managing Director/Directors (Whole-time or Independent), terming the same as ‘Commissions’. The said amount paid by a company to their Managing Director/Directors (Whole-time or Independent) even if termed as commission, is not the ‘commission’ that is within the scope of business auxiliary service and hence service tax would not be leviable on such amount.

(ii) The Managing Director / Directors (Whole-time or Independent) being part of Board of Directors perform management function and they do not perform consultancy or advisory function. The definition of management consultant service makes it clear that what is envisaged from a consultant is advisory service and not the actual performance of the management function. The payments made by Companies, to Directors cannot be termed as payments for providing management consultancy service. Therefore, it is clarified that the amount paid to Directors (Whole-time or Independent) is not chargeable to service tax under the category ‘Management Consultancy service’. However, in case such directors provide any advice or consultancy to the company, for which they are being compensated separately, such service would become chargeable to service tax.

3. In view of the above, it is clarified that remunerations paid to Managing Director / Directors of companies whether whole-time or independent when being compensated for their performance as Managing Director/Directors would not be liable to service tax.

Pending issues may be resolved in line with the above.

Yours faithfully

(Himanshu Gupta)

Commissioner (Service Tax)

CBEC, New Delhi

Source:

Notification No. 24/2009-Service Tax exempts services rendered in relation to management, maintenance or repair of roads

eris — Thu, 30 Jul 2009 02:07:48 +0000

In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the Finance Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service, referred to in sub-clause (zzg) of clause (105) of section 65 of the Finance Act,1994, provided to any person by any other person in relation to management, maintenance or repair of roads, from the whole of the service tax leviable thereon under section 66 of the said Finance Act.

[F.No.B-1/1/2009-TRU]

(Prashant Kumar)

Under Secretary to the Government of India

Circular No. 114/08/2009-Service Tax

rashmin — Sat, 23 May 2009 13:19:28 +0000

F.No.354/163/2006-TRU

Government of India

Ministry of Finance

Department of Revenue

(Tax Research Unit)

Subject: Refund of service tax paid on taxable services taxable services which are provided in relation to the authorised operations in a Special Economic Zone – Reg.

Notification No.9/2009-Service Tax, dated 3.3.2009 was issued to provide refund of service tax paid on taxable services specified in section 65(105) of the Finance Act, 1994 which are provided in relation to the authorised operations (as defined under SEZ Act, 2005) in a Special Economic Zone (SEZ), and received by a developer or units of a SEZ, whether or not the said taxable services are provided inside the SEZ.

2. Notification No. 15/2009-Service Tax, dated 20.05.2009 has been issued to amend the aforesaid Notification 9/2009-ST dated 3.3.2009 to provide unconditional exemption to services consumed within the SEZ without following the refund route thus dispensing with the requirement of first paying the tax by the service provider and then claiming the refund thereof by developer/unit. The exemption by way of refund would be limited to situations only when taxable services provided to SEZ are consumed partially or wholly outside SEZ.

3. In cases where refund needs to be claimed, notification No. 15/2009-Service Tax, dated 20.05.2009 provides for certain conditions. One of the conditions is that the Assistant / Deputy Commissioner should satisfy himself that the said services have been actually used in relation to the authorised operations in the SEZ. This may be primarily done through the documents submitted with the claim. The notification requires that the refund claim shall be accompanied by the following documents,-

(i) a copy of the list of specified services required in relation to the authorised operations in the SEZ, as approved by the Approval Committee;

(ii) documents evidencing payment of service tax.

5. The Assistant / Deputy Commissioner may, in select cases, especially where the refund amount claimed is significant cause verification of the end-use of services consumed for which refund claim is filed.

6. Board’s Circular No. 809/06/2005-CX, dated 01.03.2005 read with Circular No.857/15/2007-CX, dated 02.11.2007 which prescribes the procedure relating to sanction and pre-audit of refund / rebate claims, shall apply mutatis mutandis to cases where the individual refund claim amount exceeds Rs.5 lakh under the said notification.

7. As regards the issues relating to jurisdiction for the purposes of refund of service tax, STC code to be issued to the developer or unit of a SEZ and document evidencing payment of service tax, Board’s Circulars No. 101 /4 /2008-ST, dated the 12th May, 08 and No. 106 /9 /2008-ST dated the 11th December, 08 shall apply mutatis mutandis to the refund scheme under this notification. 80% of the due refund amount is to be sanctioned as adhoc interim refund to developer or unit of SEZ, within 15 days of filing of a refund claim, subject to the condition that refund claim is complete and contains the requisite documents.

8. It is reiterated that refund of service tax paid on taxable services used in relation to the authorised operations in the SEZ should be disposed of expeditiously. The refund claims should be finalized within a maximum period of 30 days from the date of filing of refund claim and in any case not beyond 45 days from the date of filing of the refund claim.

9. Commissioners are advised to put in place a system of review and monitoring of disposal of refund claims filed and disposed within the prescribed time limits.

10. Any difficulty faced in implementing the above provisions may be immediately brought to the notice of the undersigned.

(J. M. Kennedy)

Director (TRU)

Clarification on applicability of Service Tax after reduction in rate

rashmin — Fri, 13 Mar 2009 14:25:35 +0000

Reduction in rate of service tax is applicable with immediate effect i.e. from 24.02.2009. Consequent to the reduction of rate of service tax from 12% to 10% w.e.f. 24.02.2009, the service tax is payable at the rate applicable on the date on which service is provided or to be provided irrespective of the date of invoice. It means that if service is provided on or before 23.02.2009, service tax is payable @ 12% even though invoice is raised at a later date i.e. on or after 24.02.2009.

In case the service is of continuous nature over a period of time, the value of service is to be apportioned on a pro-rata basis and service tax is payable @ 12% on the amount for the period from 01.02.09 to 23.02.09 and @ 10% on the amount for the period from 24.02.09 to 28.02.09.