Is Trading of services made taxable under New Regime of Negative List
JUNE 08, 2012
By Punit Gupta, CA
PRESENTLY as per section 65 of the Finance Act (Service Tax) 1994 under definitions (105) "taxable service" means any service provided or to be provided - (zzb) to a client, by any person in relation to business auxiliary service;
In simple terms presently Service tax is payable on any service (specified under Section 65 of the Act) provided or to be provided to any person by any person in relation to taxable service. A question that may arise in our minds whether Trading of services is taxable. In trading of services there is a buyer of service who does not use the said service himself (say A) but sells the same at a profit margin to the actual consumer of the service (say B). The consumer of service having bought the services from the seller of the service, approaches the provider of service { Say X} to receive the said services without paying any amount to X. In this case no commission is paid by X to A nor by B to A. Whatever A earns in excess or short of its purchase price is his pure profit or loss. Here A by selling the services he is not providing any taxable services to B or X, thus no service tax was payable by him. Taxable Services were provided by X to B, though B did not pay directly to X, service tax was payable by X on its services. Here the service tax was payable by X on the amount paid by B to A in view of Service tax Valuation Rules, 2006. Thus by disregarding CENVAT chain, service tax was paid by X even on the profit margin of X. As per the definition of Exempted Service as per Rule 2(e) of Cenvat Credit Rules, 2004 - trading is included. Trading can be of goods or of services.
Proposed Section 66B of the Act provides for imposing service tax at rate of 12% on the value of all services other than those specified in the negative list. Trading of goods is not a service by being included in the proposed Negative List as per Section 66D at Sr no (e). Thus remains exempted service. But whether trading of services will become taxable?
The "Service' is defined under proposed Section 65B (44) as any activity carried out by a person for another for consideration includes declared services but shall not include - (a) an activity which constitutes merely- (i) a transfer of title of goods or immovable property, by way of sale, gift, or in any other manner ................
Section 66E of the Act specifies declared services, Sr no (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act
The words "activity" & "consideration" has not been defined in the Act, as per TRU circular no 334/1/2012-TRU dtd 16-3-2012, under Guidance note , at para 2.1.1 & para 2.2.1 it is clarified as follows;
2.1.1 ............. the word activity would include an act done, a work done, a deed done, an operation carried out, execution of an act, provision of a facility etc. It is a term with very wide connotation.
2.2.1 ........, In simple term, ‘consideration' means everything received in return for a provision of service which includes monetary payment and any consideration of non- monetary nature as well as deferred consideration.
At para 2.2.9 it is clarified Yes. The consideration for a service may be provided by a person other than the person receiving the benefit of service as long as there is a link between the provision of service and the consideration.
Under new law X agrees to do an act of providing services to the customer (B) of A (viz declared service), when A purchases services of X . Thus X will pay service tax on the selling price of the services to A.
When A sells the services of X to B after adding his margin of profit, A will be providing facilities to B (which is an activity defined as service), here A will pay service tax on its selling price to B on full amount. Thus the CENVAT chain gets established at each stage ensuring tax is paid only on value addition.
For e.g. freight forwarders buying air /ocean freight from service providers will have to pay service tax on total amount while selling it to the buyers of the service (consumers). In view of above even buying & selling of services will be chargeable to service tax from the date to be notified after enactment of the Finance Bill, 2012. Netizens may join in with their views on the issue in taking the discussion to next level.
