Sub contractor liable to pay Service Tax – Board clarifies – issues master circulars for Service Tax
The CBEC has at last officialised the draft master circulars for Service Tax. Now there are only two circulars for service Tax. At least all the instructions are in one place or rather two. The final circular has a few minor changes from the draft circular.
A new clarification is added as 999.03 /23.08.07
ISSUE: A taxable service provider outsources a part of the work by engaging another service provider, generally known as sub-contractor. Service tax is paid by the service provider for the total work. In such cases, whether service tax is liable to be paid by the service provider known as sub-contractor who undertakes only part of the whole work.
Clarification:
A sub-contractor is essentially a taxable service provider. The fact that services provided by such sub-contractors are used by the main service provider for completion of his work does not in any way alter the fact of provision of taxable service by the sub-contractor.
Services provided by sub-contractors are in the nature of input services. Service tax is, therefore, leviable on any taxable services provided, whether or not the services are provided by a person in his capacity as a sub-contractor and whether or not such services are used as input services. The fact that a given taxable service is intended for use as an input service by another service provider does not alter the taxability of the service provided.
So now all doubts about the sub contractor's liability to pay the tax is removed adversely.
So if somebody takes a contract and if the entire contract is outsourced, the sub contractors and the main contractor are liable to pay Service Tax. This may not be all that legal in view of the AP High Court judgement in the L&T case.
Works Contract- Credit on Capital Goods and input services- eligible:
The Works contractor who pays service Tax at 2% is not eligible to take credit on inputs. There were nagging doubts whether credit was barred for capital goods and input services also. Board has now clarified that there is no such bar. Clarification 097.01 / 23.08.07
In case of return ticket, service Tax on whole value:
Whether service tax is liable on the total value of the ticket or only half the value of the ticket in the case of round trip / return ticket (say Delhi-London-Delhi)?
Board clarifies that Service tax is leviable on the total value of the ticket. –Clarification. 086.05 / 23.08.07
Organisation of trade fairs – more clarity?
Organizers of Trade Fairs and Exhibitions solicit participation from the trade and industry and provide space and other facilities, including furniture, cabins, security, electricity, etc., to display products and provision of services. Whether services provided by the organizers of trade fairs / exhibitions are covered within the scope of event management service [section 65(015)(zu)]?
Board has now clarified this issue in more detail,
Trade fairs and exhibitions are organised by persons. Such organisers of trade fairs and exhibitions provide services to exhibitors in relation to business exhibition. Services provided by an organizer of trade fairs and exhibitions to an exhibitor in relation to business exhibition is liable to service tax under “Business Exhibition Service” [Section 65(105)(zzo)] w.e.f. 10.09.2004.
In addition, an organiser of the trade fair or business exhibition may engage an event manager to provide service to the organiser in relation to organising trade fairs and exhibitions. In such cases, the event manager renders the service of “Event Management” to the organisers and is liable to pay service tax under “Event Management Service”.
The two services, namely “Business Exhibition Service” and “Event Management Service”, and the two service providers of the respective services are distinct.
Clarification 041.01 / 23.08.07
Service Tax on Chit funds – new clarification added.
Board clarifies
(a) In the case of Simple Chit Funds, no consideration is paid or received for the services provided and, therefore, the question of levy of service tax does not arise.
(b) In the case of Business Chit Funds, cash management service is provided for a consideration and, therefore, leviable to service tax under “banking and other financial services
Clarification 034.04 /23.08.07
Whether repair of ships during dry-docking by persons duly authorized by the Port is leviable to service tax under port service [section 65(105) (zn)]?
This issue clarified in the draft circular is now missing – Clarification 35.01 in the draft circular.
CIRCULAR NO. ,and 97 / 8 /2007 Dated: August 23, 2007