WEDNESDAY, DECEMBER 5, 2007

By Dinesh Kumar Agrawal

(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or

(ii) promotion or marketing of service provided by the client; or

(iii) any customer care service provided on behalf of the client; or

(iv) any incidental or auxiliary support service such as billing, collection or recovery of cheques, accounts and remittance, evaluation of prospective customer and public relation services, and includes services as a commission agent, but does not include any information technology service.

However, the scope of BAS was subsequently enlarged by the Finance Act, 2004 and 2005 and presently BAS is defined to mean any service in relation to,-

(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or

(ii) promotion or marketing of service provided by the client; or

(iii) any customer care service provided on behalf of the client; or

(iv) procurement of goods or services, which are inputs for the client; or

(v) production or processing of goods for, or on behalf of, the client; or

(vi) provision of service on behalf of the client; or

(vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, and includes services as a commission agent, but does not include any information technology service and any activity that amounts to "manufacture" with in the meaning of clause (f) of section 2 of the Central Excise Act, 1944.

Prima facie it appears that billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, commission agent etc are included in the BAS and therefore taxable.

However, a close scrutiny of the clause (vii) of the new provision vis-à-vis clause (iv) of the old provision will reveals that the Finance Act, 2004 has changed the aforesaid preposition. Incidental or auxiliary support services which are incidental or auxiliary. However, a close scrutiny of the clause (vii) of the new provision vis-à-vis clause (iv) of the old provision will reveals that the Finance Act, 2004 has changed the aforesaid preposition. Incidental or auxiliary support services which are incidental or auxiliary to any activity specified in sub-clauses (i) to (vi) of section 65(19) of the Finance Act is included in the sub-clauses (vii) of section 65(19) of the Finance Act. The use of words “such as” before the word “billing” clearly means that these services are merely illustrative in nature and has to satisfy the main criteria which precedes the words ‘such as’. In other words, if incidental or auxiliary support services are not incidental or auxiliary to any activity specified in aforesaid sub-clauses (i) to (vi), then such service will not be considered as BAS. On the other hand, earlier definition of BAS was an omnibus definition without any qualification.

Auxiliary means giving assistance or support or acting as supplementary. It serves as an aid to something. Incidental means happening or likely to happen in an unplanned or subordinate conjunction with something else. There are certain services illustrated at sub-clause (vii), which may qualify as incidental or auxiliary to some of the activity specified at aforesaid sub-clauses (i) to (vi). Public relation services may be considered as auxiliary to customer care service listed at sub-clause (iii). Commission agent is a person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration. Services of a commission agent are even otherwise covered at sub-clause (i) if pertains to sale of goods, (iv) if pertains to procurement of goods or services, and (vi) if pertains to provision of service.

There are some services, illustrated at sub-clause (vii) above, generally which are not incidental or auxiliary to activities listed at sub-clauses (i) to (vi). BAS deals with services performed by a person on behalf of the principal who may be manufacturer or service provider. Generally promotion, marketing, sale of goods or procurement of input is undertaken by the manufacturer himself. But he may outsource some of the activity to other person who works as an agent. BAS does not deal with sale of goods or provision of service per se. Inventory management service given to a commission agent will fall within the ambit of sub-clause (i), (iv) or (vi) but when same service is given directly to a manufacturer or service provider, it will not fall within the ambit of any sub-clause (i) to (vi). Similarly, maintenance of accounts and issue of cheques can not be considered as auxiliary or incidental to any activity listed at sub-clause (i) to (vi).

In final analysis, it appears that that although scope of BAS has been enlarged by the Finance Act, 2004 and 2005 by adding services of buying agents and contract manufacturer/job worker but scope of auxiliary and incidental services within BAS has been restricted and all the services illustrated at sub-clause (vii) may not qualify to be Business Auxiliary Service.

(The Author works with Khaitan & Co, Mumbai)

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