1. Strategic Planning in Service Tax

2. OBJECTIVE
Availing advantage by adopting legal measures of tax planning.
To make cost of goods or services as competitive as possible.
To be burdened only by minimum levy of tax.
Business could be strategically planed to pay the correct amount of service tax.
To create legal awareness for in-depth examination.

3. SERVICE TAX ? It is an Indirect Tax on service industry.
Service is a performance of any duties or work for another.
Levied upon specified services and not on tangible objects.
Levied upon specified persons on service provided to specified consumers.

4. SERVICE TAX ?
Tax is levied on service and not on Manufacturing,Profession, Income, Profit or Sale of Goods.
Service Tax is thus carrying the tax
to the point of consumption i.e. the last point.

5. Increase In Taxable Categories of Service Tax
80 Categories of Taxable Services

6. SERVICE SECTOR in INDIA at 56%
Percentage of GDP
Service
SERVICE SECTOR in INDIA at 56%
Service
Service

7. Change in contribution Sectors Of Economy
PRAPORTION OF DIFFERENT SECTORS OF ECONOMY
AGRICULTURE
SERVICE
SERPASSING OTHER SECTORS
INDUSTRY
PER CAPITA INCOME OVER TIME

8. REVENUE GROWTH

9. GROWTH IN ASSESSEE BASE
Number of Service Tax Assesses in India
,03,856
,74,988
Increase of 91%

10. Increase In Taxable Categories of Service Tax
80 Categories of Taxable Services

11. Definition Of Words
‘Service Provider’ and ‘Categories of Services’ as defined can only be taxed.
Understanding the definition of specified words is important for interpretation.
72 Categories of services are presently taxable out of 76 specified categories of service on 74 types of person liable to pay and 8 broad types of person to receive the service.

12. Classification Of Service
Wide scope of strategic planning in classification of taxable service.
A service beyond the scope of classified service is not taxable.
The use of word ‘include’ restricts the generally broader sense of classified service.
Service Tax Law only provides Rule of Classification of taxable service where such service is prima-facie classifiable in two or more categories.

13. Value Of Taxable Service
(A) Gross Amount
(B) Charged
(C) By the service provider
(D) For the service
(E) Rendered by him

14. GROSS AMOUNT
It is the valuable consideration for taxable service provided.
Amount of Service Tax should be separately shown in the invoice.
Any amount separately charged not directly relatable to service may not be taxable even though it is a part of ‘Gross Amount’ received.

15. Gross Amount – Exclusion & Inclusion
Includes sums received by the Service Provider from such persons on behalf of whom he is providing the service to the client or customer.
Excludes value of Transfer of Property involved in execution of service.
Detailed legal analysis of each portion of valuable consideration is necessary.

16. Gross Amount – Exclusion & Inclusion
Some portions of the gross amount charged to be excluded for determination of taxable value of service.
Notifications or clarifications issued by the Board sometime restrict the legally necessary exclusion.
Independent critical examination and framing of view is necessary in each circumstances.
Innovative thinking with open eyes is necessary for determining the value of taxable service.

17. Value Of Taxable Service
(A) Gross Amount
(B) Charged
(C) By the service provider
(D) For the service
(E) Rendered by him

18. USE OF WORD ‘CHARGED’ IN SECTION 67
The value of any taxable service shall be the gross amount ‘charged’ by the service provider for such service rendered by him

19. CHARGED
No service tax, if no service is effectuated even though invoice was raised.
Anomaly - Service Tax liability exists even if no consideration is actually received.
Invoice has to be rectified in case of short realisation or nil recovery.

20. CHARGE vs.RECEIVED
Rule 6 (1) refers to value of taxable service ‘received’.
As per Rule amount actually ‘received’ is subjected to be paid as service tax without any reference to amount ‘charged’ in the bill for which liability of service tax has been created in Section 67.
The word ‘charged’ has different meaning then the word ‘received’ or ‘payable’.

21. STRATEGIC PLANNING
Portion of gross amount charged for anything done other than for the taxable service cannot form part of valuation.
Only such element of services as specified in 72 types of taxable services are covered under service tax.

22. Value Of Taxable Service
(A) Gross Amount
(B) Charged
(C) By the service provider
(D) For the service
(E) Rendered by him

23. STATUS OF SERVICE PROVIDER
Such service provider should be covered in the 74 categories of persons who are liable to pay tax.
If the service provider is not covered under the definition no service tax is leviable.

24. Status As Agency, Firm & Body Corporate
The word ‘Agency’, ‘Firm’ & ‘Company’ and ‘Body Corporate’ as specifically used in the categories of taxable services have definite legal connotations.
The interpretation of the term-used under the taxing statute should be strictly made as per the legal meaning of the term.

25. Value Of Taxable Service
(A) Gross Amount
(B) Charged
(C) By the service provider
(D) For the service
(E) Rendered by him

26. FOR THE SERVICE Service should be covered in the ‘72 taxable service’.
If necessary element is absent, then there is no service tax.
If provision of service is incidental to indivisible contract then also there is no service tax.

27. ANALYSIS OF CONTRACT
Contract has to be read as a whole, it cannot be bifurcated or partitioned.
Transfer of goods involved in execution of turn key contract or composite works contract are taxed as sale of goods.
It is not legally correct to tax one portion of gross receipt for one nature of taxable service while taxing the same service provider under a different category of service for another portion of gross receipt of same contract.

28. ANALYSIS OF CONTRACT
Executory Contracts have primary aim of execution through use of labour.
No consultancy or advise is required in Executory Contracts. Neither any technical assistance is rendered.
Annual Maintenance Contract undertaken and executed by Engineer or Consulting Engineer are not service of consulting.

29. Value Of Taxable Service
(A) Gross Amount
(B) Charged
(C) By the service provider
(D) For the service
(E) Rendered by him

30. RENDERED
Service should be rendered to such 8 broad types of persons specified under Service Tax Act.
Service tax liability exists only when service is provided to the ultimate client/ customers/subscribers, where such words are used in the definition.
Relationship between the service provider and the receiver should be of specified type to make the service taxable.

31. Services Provider Receiver
Construction Services
Commercial Concern
Any Person
Consulting Engineer
Professionally Qualified Engineer or Engineering Firm
Client
Transport of Goods By Road
Customer
Steamer Agents Service
Shipping Line
General Insurance Services
Person Carrying on General Insurance Business
Policyholder

32. CLIENT vs. CUSTOMER
The word ‘Client’ and ‘Customer’ not defined. Since they are used distinctively they should be construed differently
The client refers to services which are tailor made and designed / created under specific given circumstances.
The customer refers to services which are standard and repetitive in nature.

33. CLIENT vs. CUSTOMER
Wherever the word ‘client’ or ‘customer’ is used in the category of taxable service, it leads to the creation of liability of service tax at the last point.
Service between the two persons of same category of service providers with an aim to provide ultimate service to a client or customer is not taxable.

34. Why Planning In Regime Of Service Tax Credit ?
Duty of the citizen to charge and pay correct amount of service tax
Nothing less – Nothing more.
Law does not permit to charge more than the due tax.
Law also requires to pay just and right amount of tax.

35. Why Planning In Regime Of Service Tax Credit ?
Cost of Finance -Cash Flow out when service or goods is purchased, but credit can be availed when valuable consideration for final service/goods is received.
To avail input credit, Service Tax on input services should have been paid.
No refund of un-availed service tax credit.

36. Why Planning In Regime Of Service Tax Credit ?
Burden of proof regarding admissibility of service tax credit lies on the person taking benefit of such inputs credit.
Separate accounts for non-taxable or exempted services vis-à-vis taxable services and goods are necessary.
The input tax credit can be availed for that service only which is related to the output service.

37. Why Planning In Regime Of Service Tax Credit ?
Service tax credit is available across goods and services
Service tax credit cannot be fully availed or exhausted where output is subject to nil rate of tax or where it is exempted from tax.
Exporters and manufacturers of excise exempt goods are at dis-advantageous position.
Procedural modalities – a problem area

38. Importance Of Planning Service Tax
For paying right amount of tax
For least burden on consumers of goods and services
For making output competitive.
To reduce cost of finance
To run business at least cost
To attract minimum amount of tax

39. Why Planning In Regime Of Service Tax Credit ?
Duty of the citizen to charge and pay correct amount of service tax.
Nothing less – Nothing more.
Law does not permit to charge more than the due tax.
Law also requires to pay just and right amount of tax.

40. CONCLUSION SERVICE TAX ADMINISTRATION
Requires revamping and separate comprehensive legislation
Distinct Administrative Machinery
Aimed to bring in greater clarity, streamlined procedures, greater taxpayer assistance & new tax culture of voluntary compliance

41. Information on WEB SITE
Web Sites loaded with information provided by the Government to guide assesses in service tax matters:

42. SPECIFIC STRATEGIC PLANNING IN RESPECT OF IMPORTANT CATEGORIES OF TAXABLE SERVICES

43. COMMISSION AND INSTALLATION INCLUDING ERECTION

44. ESSENTIALS Service must be provided to a customer only.
By a commissioning and installation agency.
In relation to commissioning, installation, or erection.
It must relate to plant, machinery or equipment.
Service provided for any other nature of goods outside the legal meaning of plant, machinery or equipment is not taxable.

45. Erection, Installation & Commissioning
Erection Stage – putting of base as civil structure
Installation stage- the act of putting a plant, machine or equipment ready for use
Commission stage – operationalising installed plant, machine or equipment

46. Strategic Planning – Turnkey Projects
Turnkey projects are ‘indivisible’ contracts containing the element of ‘service’ as well as ‘sale of goods’
No separate value is assigned to service portion
No reasonable bifurcation of consolidated charges legally possible
Tax cannot be levied on the portion which is legally not taxable

47. Strategic Planning – Turnkey Projects
The option of paying service tax on some portion of the gross value of the composite value of contract on admitted breakup of value between sale of goods and service has been held as unreasonable .
Strike a clear balance between the imposition of service tax and sales tax on the same subject matter as per the decision of Hon’ble Apex Court.

48. Strategic Planning – Status & Relationship
‘Customer’ relation necessary, tax not leviable on service taken by ‘client’
Service provided by an ‘Agency’ other than commercial concern - not taxable
Service provided by an individual exempt 60

49. Strategic Planning – Status & Relationship
Relationship between a customer and service provider must be of agency.
A turnkey contractor provide the service as an independent contractor without interference and control of the owner as to how the contract has to be performed or executed.
There is a complete absence of relationship of agency .

50. Strategic Planning – Agent & Servant
Supreme Court have determined the difference between the relationship of master and servant and of principal and agent.
A principal has a right to direct what work the agent has to do.
A master has a further right to direct not only what work but how the work is to be performed.

51. Strategic Planning - Independent Contractor & Agent
Independent Contractor is entirely independent of any control or interference.
Independent Contractor merely undertakes to produce a specified result, enjoying his own means to produce that result.
An agent is bound to exercise his authority for all lawful instructions of his principal.
Agent is not subject to direct control or supervision of his principal.

52. Construction Services

53. ESSENTIALS Any service Provided to any person By a commercial concern
In relation to construction services.

54. Construction Services Means
Construction of new building or civil structure or a part thereof; or
Repair, alteration or restoration of, or similar services in relation to, building or civil structure,

55. Construction Service -
Which is -
Used, or to be used, primarily for; or
Occupied, or to be occupied, primarily with; or
Engaged, or to be engaged, primarily in, commerce or industry, or work intended for commerce or industry, but does not include road, airport, railway, transport terminal, bridge, tunnel, long distance pipeline and dam;

56. Necessary Considerations – Construction Services
Only Civil Construction liable to tax
Building or Civil Structure should be primarily used, occupied or engaged in ‘commerce or industry’, which should be legally interpretated.
Civil Construction for residential and habitation purpose not liable to tax.

57. Necessary Considerations – Construction Services
Transfer of property in goods in any form or condition cannot be taxed legally under service tax , so its value to be determined properly.
Civil Construction performed by an individual as contractor is not taxable.

58. Strategic Planning – Construction Service
Contract for civil construction of large factory including the development of residential area should be bifurcated into two contracts one for construction for commerce & industry and another for habitation i.e. residential area, club house, parks, schools etc.

59. Strategic Planning – Construction Service
Since the Turnkey Contracts for construction of building and civil structure do not have the benefit of relationship of agency between the service provider and the owner, so it is strategically advantageous to undertake two different contracts one for civil construction and another for erection, commissioning and installation of plant & machinery.

60. CONSULTING
ENGINEER’S
SERVICES

61. ESSENTIALS Any service To a client Provided by a ‘consulting engineer’
In relation to advice, consultancy or technical assistance
In any manner
In one or more disciplines of engineering.

62. Consulting Engineer Means
Any professionally qualified engineer or an engineering firm
Service of advise, consultancy or technical assistance.
In any engineering field.

63. Strategic Planning Consulting Engineer
Service provided by a professionally qualified engineer or engineering firm is only taxable.
Service provided by an experienced, but non-qualified person is not taxable.
Service provided by qualified engineer beyond the scope of any discipline of engineering is not taxable.
Service not covered as advise or consultancy or technical assistance not taxable.

64. Strategic Planning Consulting Engineer
Service provided as sub-consultant/associate consultant to another consulting engineer not taxable.
Service of providing any certificate under any statute is not taxable.
Service of preparation of drawings, documents, advise, consultancy or technical assistance under turnkey project will not be taxable being part of overall responsibilities under the contract. Vivisection of works contract is not permissible in the scheme of law.

65. Strategic Planning Consulting Engineer
Drawing and designing of any plant, machinery, equipment by its manufacturer are not taxable.
Service remuneration should be bifurcated into professional charges and reimbursement of expenses while issuing the invoice, as the reimbursement of actual expenses are not liable to service tax.

66. BUSINESS AUXILLARY SERVICE

67. ESSENTIALS Any service To a client By a commercial concern
In relation to business auxiliary service

68. Business Auxiliary Services Means
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

69. Business Auxiliary Services Means
(iv) procurement of goods or services, which are inputs for the client; or
(v) production of goods on behalf of the client ; or
(vi) provision of service on behalf of the client ; or

70. Business Auxiliary Services Means
(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, evaluation or development of prospective customer or vendor, public relation services, management or supervision

71. Business Auxiliary Services Means
and includes services as a commission agent, but does not include any information technology service and any activity that amount to Manufacture within the meaning of clause (f) of Section 2 of the Central Excise Act 1944.
To make a service taxable it should meet each and all the necessary criteria of business auxiliary service.
Absence of any criteria may bring a ray of hope.

72. Business Auxiliary Service
Relationship of a client with a commercial concern–a pre-requirement.
Business Auxiliary Service provided to a customer is not taxable.
Service provider should be a commercial concern providing services by continuity and multiplicity of service transaction as has been appreciated by the Apex Court.

73. AMBIT
Business Auxiliary Service is taxable only at its final stage and not in the intermediate stage.
Scope of Business Auxiliary service is vast, but there is a line of control, which has to be identified.
Services specified in the framework of law can only be taxed.
Each service has to be examined separately, if and only if the necessary ingredients of Business Auxiliary Service are present then only it will be taxable.

74. Production of Goods on Behalf of Client
Production of goods have been taxed while activity of manufacture within meaning of Section 2 (f) of the Central Excise Act has been excluded.
The true sense of ‘Production’ and ‘Manufacture’ having different connotations to be legally and critically examined in each circumstances of activity of service.

75. Production of Goods on Behalf of Client
Every manufacture can be categorized as production, but every production need not amount to manufacture.
Since two words have different connotations, so they have to be critically applied in factual circumstances of the providing of service.

76. STRATEGIC PLANNING
Nomenclature is not a definite criteria for taxability of the service.
Nature of service and basic elements decides whether all necessary ingredient of taxable service are present .
Rules of classification and interpretation to be applied .
Legal decisions to be examined in the light of the actual facts of the service.

77. STRATEGIC PLANNING
The services of commission agent, consignment agent and clearing and forwarding agent need close scrutiny to qualify them for the appropriate category of service.
Introduction of a willing buyer to a willing seller and leaving them to negotiate the contract on their own is not a taxable service.

78. STRATEGIC PLANNING
Information Technology Services are out of preview of taxable Business Auxiliary Service.
Individual IT Services should be brought within the four corners of the definition exempting the IT Services.
Computer enabled services namely data processing, networking, back office processing, computer facility management are exempt.
Just use of computer and IT technology in providing a service does not qualify it for exemption.

79. Inter-Company Use of Services
The parent company or any other sister company incurring expenditure on common facilities and functions should seek actual reimbursement of expenses on documentary evidence.
Element of income in the accounting of service will make such activity taxable, proper accounting treatment necessary.

80. Inter-Company Use of Services
Service provided to in-house department or group companies without any consideration or raising any bill is not taxable.
Amount charged in respect of goods or material or part sold to a client during the course of rendering a Business Auxiliary Service will not included in value of taxable service.

81. Specific Exemptions
Notifications 8/2003-ST dated fully exempts service provided by call centres and medical transcription centres. Effective from
Notifications 13/2003-ST dated earlier exempted commission agents who cause purchase of goods. W.E.F the amended notifications states exemption is available to commission agent providing services in relation to sale or purchase of agriculture produce only.

82. STRATEGIC PLANNING
Business Auxiliary Service provided under the statutory law will not be taxable unless otherwise specifically provided.
Scope of Business Auxiliary Service is though wide, but there is line of control which is to be identified .
Critical examination of each aspect of service according to the definition may provide a ray of hope.

83. Clearing
and
Forwarding
Agent's
Services

84. ESSENTIALS Any service In any manner To a client
By a clearing and forwarding agent
In relation to clearing and forwarding operations.

85. Clearing & Forwarding Agent Means
Any person
Engaged in providing any service
Directly or indirectly
Connected with clearing and forwarding operations in any manner
To any person
Includes ‘Consignment Agent’

86. Clearing & Forwarding Means
Receiving goods from factories or premises of the principal or his agent
Warehousing the goods
c. Receiving the despatch orders from the principal

87. Clearing & Forwarding Means
Arranging despatch of goods as per the direction of the principal by engaging transport on his own or through the authorized transporter of the principal
Maintaining records of receipt and despatch of goods and stock
f. Preparing invoice on behalf of principal

88. STRATEGIC PLANNING
Service provided by a broker, billing agent, person who just lets out godown are not clearing and forwarding services.
Service provider should be the authorized representative of the principal owner.
Service provider must provide service which is directly or indirectly related to C&F operations.

89. STRATEGIC PLANNING
A Consignment Agent service will be taxable only if they are of clearing and forwarding in nature.
Nomenclature of the service provider is not the ultimate factor to make a service taxable.

90. STRATEGIC PLANNING VALUATION OF SERVICE
Deduction for statutory duties like sales tax, Octroi allowable.
Incidental Services – recovery of expenses- postage, courier, telephone, freight, cartage , loading & unloading charges , if charged separately, not to be taxed.

91. STRATEGIC PLANNING VALUATION OF SERVICE
Storage or Warehousing charges under separate contract not taxable.
Transportation Charges realised under a separate bill not taxable.
Service of inland container depot and custom freight station not taxable.

92. Franchise
Services

93. FRANCHISE
Franchise means an authorization granted by Government or a Company or any Establishment under a Franchise Contract.
To carry out specified commercial activities or services.
Franchisor is a service provider and Franchise is a service receiver.

94. ESSENTIALS Any service To a franchisee By the franchisor
In relation to franchise

95. Franchise Means An agreement which –
(i) franchise is granted representational right to sell or manufacturing goods or to provide service or undertake any process identified with franchiser, whether or not a trademark, service mark, trade name or logo or any such symbol, as the case may be is involved.

96. Franchise Means
(ii) the franchiser provides concepts of business operation to franchise, including know-how, method or operation, managerial expertise, marketing technique or training and standards of quality control except passing on the ownership of all know how to franchisee ;

97. Franchise Means
The franchisee is required to pay to the franchiser, directly or indirectly, a fee ; and
(iv) the franchisee is under an obligation not to engage in selling or providing similar goods or services or process , identified with any other person ;

98. FRANCHISER - FRANCHISEE
Franchiser is a person who enters into Franchise agreement with a Franchisee.
Franchisee is construed accordingly as any person who enters into Franchise with a Franchiser.

99. STRATEGIC PLANNING
Since exhaustive definition for Franchise and Franchiser are given under the legal provisions, they are to be strictly considered and nothing can be assumed or interpolated.
If any specified element in the definition is absent in a particular circumstances and facts such agreement is not a taxable Franchise.

100. STRATEGIC PLANNING
Principal Manufacturer only allowed production of goods bearing his brand name without providing know-how, managerial expertise, marketing technique etc. is a licensed production and not Franchise.
Franchisee gets or obtains Franchise rights or representational rights from the Franchiser .

101. THANKS ACKNOWLEDGEMENTS
I sincerely acknowledge the guidance and feed back received from my brother colleagues specially Mr. Naveen Garg, Chartered Accountant and Mr. Arvind Sharma , Advocate .
I express my sincere thanks to Mr. Aseem Mowar, pursuing his final year of LL.B, and my office staff in assisting me for preparation of this presentation.