Service Tax - an Introduction
IN a landmark judgement, the Madras High Court while upholding the Service Tax on Film distribution, remarked,
Service Tax is an indirect tax levied on certain services provided by certain categories of persons including companies, associations, firms, body of individuals etc. Services constitute heterogeneous spectrum of economic activities, covers wide range of activities, such as management, banking, insurance, hospitality, consultancy, communication, administration, entertainment, research and developmental activities forming part of retailing sector. Economists hold the view that there is no distinction between the consumption of goods and consumption of services as both satisfy the human needs. (See ALL INDIA FEDERATION OF TAX PRACTITIONERS AND OTHERS v. UNION OF INDIA AND OTHERS, ().
During 1994-95, a new concept of Service Tax was introduced by imposing tax on services of Telephones, General Insurance and Stock Broking and the list has increased since then. Chapter V of the Finance Act, 1994 defines "assessee" to mean the person responsible for collecting the service tax. The Service Tax was defined to mean tax chargeable under Chapter V. Taxable Service was defined to mean any service provided by stock brokers to an investor in connection with sale or purchase of securities listed by a recognised stock exchange; services rendered by the subscriber of the telegraph authority and services rendered by insurer to a policy holder. Section 66 stated that Service Tax shall be levied at the rate of 5% of the value of the taxable services provided to any person by service provider who was responsible for collecting the service tax.
Finance Act, 1998, was also to the same effect as that of the 1994 Act and in the 1998 Act, the list of notified services were increased to include advertising agencies, travel agencies, architects, entrepreneurs, clearing and forwarding agencies, credit rating agencies, customs house agents, practicing charted accountants, cost accountants, real estate agents, security agencies etc. The Finance Act has been amended year after year in order to bring more services into the tax net, as well as to insert certain new provision found necessary.
The legislative competence of the Parliament to levy service tax on Kalyana Mandapam, on use of goods transport services, chartered Accountants and leasing and financial services, under Entry 97 of List I under various amendments have been upheld by the Hon'ble Supreme Court in various decisions (Vide Tamil Nadu Kalyana Mandapam Association Vs. Union of India and others, (); Association of Leasing and Financial Services companies vs. Union of India and others, (), All India Federation of Tax Practitioners and another Vs. Union of India and others, (), Gujarat Ambuja Cements Ltd. And another Vs. Union of India, () and BSNL Vs. Union of India, ().
We will bring you the judgement tomorrow.