Nut Crackers
Questions on Service Tax
Q.1. What is the definition of service tax? How it is to
be differentiated from other transactions, such as sale of goods or a
composite transaction of sale of goods and services?
Ans.: Service tax is defined under section 65(95) of
the Finance Act, 1994 (“the Act”) to mean the tax leviable under the
provisions of Chapter V of the Act. Service tax is therefore a tax levied on
the amount received in respect of the taxable services specified under the
Act. Service tax is different from other transactions such as sale of goods or
a composite transaction of sale of goods and provision of services. Sale of
goods implies the transfer of property in movable goods from one person to
another for a valuable consideration. A composite transaction of sale of goods
as well provision of services entails both the elements viz., sale as well as
services and the transaction in such cases cannot be completed in the absence
of either of the elements e.g. Construction Services. As opposed to the above
two transactions, Service tax is liable on the rendition of services. The
moment a taxable service is rendered it would be liable to Service tax e.g.
Banking and other Financial services, Insurance services, Chartered
Accountants’ services, Management Consultants’ Services etc. Sale and service
are mutually exclusive; i.e., a transaction can either be a sale and
accordingly liable to VAT/Sales tax or it can be a service and accordingly
liable to Service tax (see BSNL vs. Union of India [2006 (2) STR 161 (SC)]).
Q.2. If a sale is different from transaction for
rendering of service, can sale of space for advertisement be subject to
service tax under section 65(105)(zzzm)?
Ans.: In order for a transaction of sale to be
liable to VAT/Sales tax, there must be a sale of ‘goods’. In other words there
must be transfer property in movable goods from one person to another for
valuable consideration.
Under the taxing entry of Sale of Space or Time for
Advertisement Service, there is no transfer of property in ‘goods’ inasmuch as
the space or time for advertisement does not constitute ‘goods’ as defined
under the Act/Sale of Goods Act, 1930. Since the transaction does not involve
sale of ‘goods’ it would not be liable to VAT/Sales tax.
Under the Act, the taxable service has been defined to mean
any service in relation to sale of space or time for advertisement in any
manner. Therefore, the liability to Service tax is not on the transaction of
sale of space or time but on services in relation to such sale such as the
commission of the intermediary or agent involved in relation to such sale.
Q.3. Can it be said that services are rendered and
consumed simultaneously and, therefore, services cannot be stored? If the
answer is ‘yes’, can services ever be imported from outside India? If the
answer is ‘no’, can it be said that there is difference between goods and
services?
Ans.: Service tax is a tax on rendition of service.
Whether the taxable event is distinct or whether it coincides with consumption
is irrelevant to the levy of the tax. In a given case, service may be consumed
at the same time / simultaneously with the rendition and in another case,
there may be a difference in the time and place between rendition and
consumption of the service.
Q.4. If a person has entered into a non-cancellable
lease of an immovable property for a period of 10 years, it is a transaction
in capital asset subject to capital gains tax under Income Tax Law. Can such
transaction be regarded as a sale transaction (transfer of a right) and,
therefore, not taxable under the category of “renting of immovable property”?
Ans.: Liability to capital gains tax under the
Income-Tax Act, 1961 is independent of levy of Service tax as they are
governed by two different statutes. The scheme and purpose of both the said
statutes are different. The Income-tax Act seeks to tax the income earned by
an assessee in a transaction whereas Service tax is a tax on the levy of
taxable services. Income tax is a direct tax and is liable in the hands of the
assessee, whereas Service tax is an Indirect tax, the liability accruing on
the rendition of taxable service. The transaction of renting/leasing of
immovable property is governed by
section 105 of the Transfer of Properties Act, 1882 and is therefore, not a
sale and is distinct from a sale.
Q.5. Is advance received for rendering service taxable,
when there-no taxable event at that point of time?
Ans.: The taxable event is the rendition of taxable
service or receipt of money whichever is earlier. If an advance is received
for rendition of taxable service then such advance would be liable to Service
tax.
This is because section 65(105) of the Act was specifically
amended by Finance Act, 2005 to cover not only services rendered but also to
be rendered. However, Rule 6(3) provides that if the services not rendered for
any reason whatsoever, such as, cancellation of contract, the Service tax paid
on the basis of the amount received in advance shall be adjusted against
liability in respect of other taxable services. The Rule is silent on the
situation of no service being provided at all. In such a situation the
refunded of service tax paid is implied.