Comments On Draft Circular For Technical Issues In Service Tax Law
Board has put forth a comprehensive draft circular to clarify various issues relating to classification and valuation of taxable services and levy of service thereon with the result that all the previous circulars issued by CBEC/DGST on these issues will be consigned to dustbin of history. CBEC’s effort to codify the list of existing taxable services by assigning three digit numbers starting from 001 to 999 is indeed commendable. As mentioned in earlier DDT 639 we hope that this process of codification will be incorporated in the statute as well. Now coming back to the nitty-gritty of the actual clarifications or the lack of it in the proposed draft circular on technical issues – here are some comments prepared by our hard core team.
010: Manpower recruitment and supply service:
If one business entity ‘A’ provides its personnel to another business entity ‘B’ for a temporary period and the cost of such personnel is recovered by entity ‘A’ from entity ‘B’ on actual basis (without any mark up or premium) will this activity of sharing of personnel be categorized under this taxable service head and chargeable to service tax? If there is a premium attached to the sharing of personnel then there is a consideration but in cases where there is no premium/mark up for sharing of personnel and it is a mere transfer on deputation will it amount to a taxable service?
Earlier vide M.F (D.R.) letter F.No. B1/6/2005-TRU dated 27.07.2005 it was clarified that such temporary transfer shall attract service tax if the supplier agrees for use of the services of an individual employed by him to another person for a consideration. It was further clarified that the value for the purpose of paying service tax shall include the staff costs whether or not such staff cost is borne by the recipient (illogical clarification as the salary and contributions to statutory authorities linked to such salary is not a direct consideration). What is the fate of this illogical circular? Can we presume that this is buried?
017.01: Management or Business Consultancy service:
In the draft circular it was clarified that services provided in relation to merger or acquisition is covered under management or business consultant service. However in the definition of Banking and other Financial Services [Section 65 (12)], clause (vi) clearly covers this activity of advice on mergers and acquisitions. The clarification is contrary to the statute if the services are provided by a commercial concern.
034.02: Banking and other Financial Service:
In the draft circular it was clarified that the amount charged as entry and exit load from the investor is not to be treated as a consideration by the asset management company and not leviable to service tax under the category of Banking and other Financial service. But is there a possibility of such consideration received by an asset management company leviable to service tax under any other taxable service head?
035.01: Port Service:
It was clarified that repair of ships during dry dock by persons authorized by the Port is leviable to service tax under the taxable service head of ‘Port Service’. Though the definition of Port Service in Section 65 (105) (zn) covers any service provided by a Port or any person authorized by the port, in relation to port services, repair of ships during dry dock may have to be classified under the taxable service head of Management, maintenance or repair service. When there is no ambiguity in the nature of service viz., repair of ships during dry dock, in terms of Section 65A (a) the sub-clause which provides the more specific description has to be preferred to sub-clauses which provide a more general description.
036.03: Authorized service station’s service:
In the draft circular it was clarified that any goods used in the course of providing service are to be treated as inputs for providing the service and accordingly, cost of such inputs should form integral part of the value of the taxable service. This principle is absolutely justified. But when there is a proposition in the same clarification that service tax is not leviable on the sale of goods and when this aspect of sale of goods during the course of provision of service is subject to verification of the facts of the transaction, a mention could have been made in the subsequent part of the clarification that it is relevant only in the case of consumables (cost inclusion aspect). The clarification could have referred to the eligibility of exemption notification 12/03-ST dated 20.06.2003 as amended for availing abatement of value when there is sale of goods during the course of provision of service subject to the conditions prevailing therein.
076: Club or Association:
In the draft circular there is no reference to the recent clarification issued by TRU vide letter dated 08.05.07 on the eligibility of cooperative housing societies whose individual membership is less than Rs. 3000 per month for exemption from service tax by virtue of Notification No. 8/07-ST dated 01.03.2007. Is it a slip or can we assume that the cooperative housing societies are not eligible to claim the benefit of this exemption notification?.
062: Commercial or Industrial construction service and 079: Construction of Complex service:
What is the status of clarifications issued by TRU vide circular no. 80 dated 17.09.2004 and TRU letter dated 27.07.2005? Further with regard to construction of complex service it was clarified in TRU letter dated 27.07.2005 that the gross amount charged shall not include the cost of land and stamp duty paid for registration of land. It was also mentioned that Notification No. 18/2005-ST (now Notification No. 1/06-ST) provides the option of abatement and service tax can be paid on 33% of the gross amount charged subject to the fulfillment of the conditions specified in the notification. With the introduction of new Section 67 and the valuation rules (18.04.2006 for the new section 67 and 19.04.2006 for valuation rules), all the previous clarifications wherever related to valuation of taxable services were withdrawn by TRU letter dated 19.04.2006 (para 4.1-13). Now what is the fate of the cost of land and stamp duty paid thereon? Is there a choice for the assessee to exclude the cost of land and the stamp duty paid thereon from the gross amount charged or they have to religiously follow Notification No. 1/06-ST.
The list may go on endlessly and the only request is that Board should not come out with this circular in haste. They have to sieve through all the circulars issued clarifying various technical issues in all the taxable services and then come out with a comprehensive circular. After all when some efforts are put in bringing out such comprehensive circular it is advisable that they put in more efforts so that they leave no stone unturned before coming out with a comprehensive circular.