Volume 3, Issue 12


13th July, 2010


Tax Alert
Amendments to Service Tax Law

The Finance Bill, 2010 had made several amendments to Finance Act, 1994 (hereinafter referred to as “Service Tax Act” or “Act”). With a view to give effect to these amendments, Notification No. 24/2010 dated 22nd June, 2010 has been issued under the Act which states that effective date of such amendments shall be 1st July, 2010.

New services brought into the tax net:

Eight new services which were notified will be taxable w.e.f 1st July, 2010. The said services are as follows:

  • Services of storing, keeping, or maintenance of medical records of employees of business entity
  • Services provided by electricity exchanges to any person in relation to electricity contracts
  • Services of promoting, marketing or organizing games of chance, including lottery conducted online or otherwise (Earlier this service was taxable by way of an explanation to Business Auxiliary Service which is now withdrawn and separate category is introduced)
  • Health services provided by hospitals, nursing homes, or multi specialty clinic
  • Commercial use or exploitation of any event
  • Services of promoting of a “brand”
  • Copyrights in respect of cinematographic films and sound recording
  • Services provided to buyer by builder of residential or commercial complex for providing preferential location or development of complex

Accordingly, any person rendering or proposing to render any of the aforesaid services will be liable to Service Tax and has to obtain registration under the said category within 30 days of rendering service or if the services are already being rendered then by 30th July, 2010. It may be noted that advances received prior to 1st July, 2010 will not be liable to Service Tax.

Amendments in the Act, effective from 1st July, 2010.

  • The definition of the term “business entity” is introduced in the Act which states that “business entity” does not include an individual. The word “business entity” is used in the definition of taxable service in relation to law. Accordingly, if the service provider or a receiver is an individual then the transaction will not be subject to Service Tax.
  • The definition of the term “passenger” has been changed to include a person performing domestic journey. Accordingly, a person travelling locally will be termed as

“passenger” and the services provided to such person will also be liable to Service Tax.

  • The definition of term “port service” has been substituted to mean any service rendered within a port in any manner. Moreover, whether a person is authorized or not, services rendered by them will fall under port service and classification rules shall not apply if services are rendered wholly within a port. Accordingly, it can be construed that if many services are rendered which are consumed wholly within a port, the services shall be classified under port service. Similar changes have been made in the definition of taxable service of other ports (governed by Indian Ports Act, 1908) and airports. However, exemption from Service Tax is granted to certain services provided within ports or airports.
  • Any commercial training or coaching institute which imparts coaching for consideration and registered as trust or society or not, will be liable to Service Tax retrospectively, i.e. w.e.f 1st July, 2003.
  • Commercial or industrial construction complex intended for sale in whole or part, before, during or after construction to aprospective buyer will be taxable unless the entire consideration for the property is paid after issuance of completion certificate. Further, advances received prior to 1st July, 2010 will not be liable to Service Tax. For advances received post 1st July, 2010 it is advisable to receive after issuance of completion certificate, in order to avoid Service Tax. Completion certificate can be issued by Government authorities, architect, chartered engineer and licensed surveyor. Abatement is granted by the Government, so the amount which is taxable is only 25%. Accordingly, builders/developers have to pay tax only on 25% of gross amount charged for providing service. Full exemption from Service Tax is granted on construction of residential complex under Jawaharlal Nehru National Urban Renewal Mission and Rajiv Awaas Yojna.
  • Sponsorship service provided to any person is liable to Service Tax. Earlier, only body corporate and firms were liable to Service Tax. However, exemption is granted for sponsorship of certain sports events.
  • Domestic journey and economy class for domestic and international journey will form part of definition of aircraft operator. Accordingly, service provided by aircraft operator to any passenger in relation to domestic journey and economy class for both journeys is liable to Service Tax.
  • Renting of immovable property, service in relation to renting and vacant land leased for construction of building to be used for furtherance of business at later stage will form part of taxable service in relation to renting of immovable property. Accordingly, any service in relation to renting is liable to Service Tax, which is given retrospective effect, i.e. w.e.f 1st June, 2007.
  • Services in relation to information technology software will be liable to Service Tax, even if services are not used in course of furtherance of business.
  • Exemption from Service Tax is granted to aircraft operator and to persons on board an aircraft in relation to transport of passengers who arrive at customs port from outside India for journey to outside India and who do not pass through immigration in India.

    Partial exemption is granted to aircraft operators. For domestic travel of any class, amount taxable is 10% of gross value of the ticket or Rs. 100 per journey whichever is less, and for international journey of economy class, the amount taxable is 10% of gross value of the ticket or Rs. 500 whichever is less. This exemption is available only if CENVAT credit is not taken on inputs.

    Further, full exemption from Service Tax is granted to aircraft operators in relation to air travel for journey originating or terminating in an airport located in Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Tripura, and Baghdogra in West Bengal.

    It has been further provided that ticket issued by aircraft operator to passenger shall be construed as invoice, bill or challan for Service Tax purposes.
  • Transport of goods in government railway were exempt up to 31st March, 2010. This exemption is now extended up to 31st December, 2010. Accordingly, transport of goods in government railway will become taxable w.e.f 1st January,