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Circulars/Trade
Notices/Clarification
Circular No - 62
62 / 11 /2003-ST,
Dated: Aug 21, 2003
File No. B3/7/2003-TRU
Subject:
Miscellaneous issues relating to the services on which service tax has
been imposed with effect from 1-7-2003.
1. Commissioning or installation :
1.1 Commissioning or installation of plant, equipment or machinery by
a commissioning or installation agency,
is chargeable to service tax. A doubt has been raised as to whether the
services like a plumber putting up a water tank, fitting pipes and tubing,
an electrician putting up electric wire
and fittings, installation of booster motors, air conditioners, water
filters, hand-pumps, water heaters etc.
will be chargeable to service tax.
1.2 As commonly understood, the activity of installation means the act
of putting an equipment, machinery or plant into its place and making
it ready for use. The activity of installation will start after erection
which would refer to putting up civil structures. Commissioning of a plant
would mean operationalising an installed plant/equipment/machinery.
In this backdrop it is clarified that putting up a water tank, piping,
electric wiring, in a residential premises etc. would not be covered in
the definition of taxable service
and thus would not be taxable. However, installing a booster pump, air- conditioner,
water filter, water heater etc. would be covered in the definition and
be taxable, as all these things are
machinery or equipment.
1.3 Notification No.18/2003-Service Tax dated 21-8-03 has been issued
which exempts commission
or installation services provided by a commissioning or installation agency
other than a commercial concern. Accordingly
the commissioning or installation services provided
by an individual will be exempt from service tax.
1.4 Notification No. 19/2003-Service Tax dated 21-8-03 has been issued
which provides that in case of a contract
which involves the commissioning or installation service alongwith supply
of plant, machinery or equipment, service tax will be payable only on
33% of the gross amount charged for commissioning
or installation and supply of plant, machinery or equipment.
It is optional for the assessee to avail of this notification. It is emphasized
under this notification that the gross amount
(33% of which is chargeable to service tax) shall
include the value of the plant, machinery, equipment, parts and any other
material sold by the service provider alongwith
the commission or installation service. The benefit of this
notification can be availed for a contract only if the exemption under
notification 12/2003-Service Tax dated 20-6-2003
is not availed for that contract.
1.5 Corrigendum to Circular No. 59/8/2003: In Service Tax Circular No.
59/8/2003, dated 20th June 2003, in
paragraph 2.6,-
(i) in the first sentence the words “commercial coaching and training”
may be read as “commissioning or installation”
;
(ii) in the first bullet the sentence “It is submitted that it has
been provided in law that service tax is
leviable on erection and commissioning charges only and not on the material
and goods supplied.” may be read as
“It is clarified that it has been provided in law that service tax
is leviable on commissioning or installation charges only and not on the
material and goods supplied.”
2. Scope of IT service under Business Auxiliary Service:
2.1 The definition of Business Auxiliary Service in the law excludes the
Information Technology (IT) services.
As per the definition IT service means any service in relation to designing,
developing or maintaining of computer
software or computerized data processing or system networking
or any other service primarily in relation to operation of computer systems.
It was clarified in Circular No. 59/8/2003,
dated 20th June 2003 that only if the output service
provided by a service provider is in the nature of the above operations,
such exclusion would operate. The
mere fact that a personal computer or a laptop has been used
for providing the service does not, ipso facto, make the service an information
technology service. Similarly, the
fact that any of the IT services has been used by the service
provider as an input service does not automatically make the output service
an IT service.
2.2 A doubt has been raised that the clarification in the said circular
dated 20-6-03, is at odds with the letter
F.No.334/1/2003-TRU dated 28-2-2003 which states, “However computer
enabled services, namely, data processing,
networking, back office processing, computer facility
management shall not be subjected to Service Tax.” It is claimed
that back office processing may include
accounts outsourcing or payroll-processing activities etc. and such service
may not be primarily in relation to computer system.
2.3 It is clarified that there is no contradiction between the clarifications
dt.28-2-03 and dt.20-6-2003. The scope
of IT services is explained in the definition of Business Auxiliary Service
in the Act itself as any service in relation to designing, developing
or maintaining of computer software
or computerized data processing or system networking or any other service
primarily in relation to operation of computer systems. The last words
“primarily in relation to operation
of computer systems” make the intention abundantly clear. The words
“back office processing” used in the clarification dated 28-2-2003
have to be read in conjunction with
the other terms used therein viz. data processing, networking, computer
facility management. Thus any service of back office processing primarily
in relation to operation of computer
system will be covered as IT services and not taxable. Payroll-processing,
accounts management etc. even by using computer programs, can not be
termed as activities primarily in relation to computer systems. The use
of computer in these services is secondary
and the primary activity is that of business-related work. Thus these
services will be taxable as Business Auxiliary Services. This is exactly
the position that has been clarified
in the circular dated 20-6-2003.
3. Maintenance or repair service:
3.1 Maintenance or repair services rendered under contracts entered
into prior to 1-7-2003 are exempted
from service tax if the bills are raised, and payment also made, prior
to 1-7-2003
(notification No.11/2003-ST dated 20-6-03). In this context a doubt has
been raised as to whether service
tax would still be chargeable in cases where though the bills are
raised, or payment made, after 1-7-2003, but the service was rendered
prior to 1-7-2003.
3.2 It is a basic principle that no tax can be charged except under
authority of law. Thus, if the levy
of service tax on a particular service comes into force on a given date,
that service will not be taxable if
rendered before that date. The levy of service tax on “Maintenance
or repair service” has come into force on 1-7-2003. Accordingly
any maintenance or repair service
rendered prior to 1-7-2003 will not be taxable, irrespective of
when the bills are raised or payment made. This will apply to other services
as well which were rendered
prior to the imposition of service tax on them.
3.3 Notification No. 20/2003-Service Tax dated 21-8-03 has been issued
which exempts services in relation
to maintenance or repair of computers, computer systems and computer
peripherals.
4. Foreign exchange broking:
4.1 With regard to services provided by money changers, a doubt has been
raised whether all trading in foreign exchange
will be chargeable to service tax.
4.2 Prior to 1-7-2003 the service of “securities and foreign exchange
(forex) broking”, when provided by
banking company/financial institution/body corporate was liable to service
tax. Through Finance Act, 2003 “foreign
exchange broking” when provided by foreign exchange brokers,
other than banking company/financial institution/body corporate, were
also brought under the tax net w.e.f 1-7-2003.
As per the definition in law foreign exchange brokers
include authorized dealers of foreign exchange. Authorised dealer of foreign
exchange has been assigned the meaning of
“authorized person” under the FEMA, 1999. Accordingly
authorized dealers/money changer etc. which are authorized to deal in
foreign exchange are covered in the definition
of “foreign exchange brokers” under service tax provisions.
However, as explained above only the service of “foreign exchange
broking” when provided by foreign
exchange brokers (other than banking company/financial institution/body
corporate which are already covered) has been brought under the tax net.
5. Service rendered free of charge:
5.1 In the context of certain services, a doubt has been raised as to
whether service tax will be payable if the
service is provided free of charge.
5.2 As per charging section viz. section 66 of the Act, service tax is
chargeable at the rate of 8% of the value
of taxable service. Thus if the value is zero the tax will also be zero
even though the service is taxable.
6. Receipt of this letter may please be acknowledged.
Gautam Ray
Joint Secretary (TRU)
Telephone: 011-23092687
Fax. 011-23092031
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