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Contents

Chapter 2 - Declared Services 1

Service Tax on Demurrage Charges for Renting of Godown: 1

Service Tax on Re-development of a Co-operative Housing Society: 2

Service Tax on Fixed Deposit given to Builder for sale of an under construction apartment: 3

Service Tax / VAT on Sale of Software: 4

Service Tax on Renting of Bank Lockers by Banks: 5

Service Tax on Showcasing of Movies in Theatres: 5

Service Tax on temporary transfer of Patents: 6

Right to use the infrastructure of tower sites & shelter rooms by telecom companies: 6

 

Chapter 2 - Declared Services

 

Service Tax on Demurrage Charges for Renting of Godown:

 

Mr. Vivek stores containers of Oil for his customers in his godown. He agreed to do the same for 50 containers of Dhanraj & Sons from 1.10.2012 to 31.12.2012. Dhanraj & Sons cleared 35 containers on 25.12.2012 and the balance containers on 14.01.2013. Mr. Vivek raised the invoice in the following manner:

 

Amount for storing of Containers of Oil (from 1.10.12 to 31.12.12) Rs. 35,000/-

Demurrage charges (for 15 containers from 31.12.12 to 14.01.13) Rs. 12,000/-

Total Rs. 47,000/-

 

Calculate the ST Liability for Mr. Vivek.

 

Solution:

 

As per section 65B of the Finance Act, Service is defined as an activity for consideration carried out by a person for another and includes a declared service.

 

In the given case Mr. Vivek provides the service of renting his godown for storage of Oil containers for Dhanraj & Sons for which he charges a consideration.

 

Renting of immovable property is covered as Declared Service u/s 66E. Hence, service tax will be applicable on Rs. 35,000/- as Gross Amount Charged for renting of godown for storing of containers.

 

Now the question is whether service tax will be charged on Rs. 12,000/- which is in the nature of Demurrage charges. Demurrage is the amount charged as penalty by Mr. Vivek for storing the containers ( or in other words renting of the godown) beyond the contracted period. Demurrage charges payable will be treated as consideration for retention of containers beyond the normal period. Thus, it is in nature of consideration for renting of godown for the extended period and hence, liable to tax.

 

Calculation of Service Tax Liability:

 

Gross Amount Charged will include:

 

Amount for storing of container of Oil = 35000/-

(+) Demurrage Charges Payable = 12000/-

Therefore, GAC = 47000/-

 

Service Tax Liability = 47000*12.36% = 5,809/-

 

 

Service Tax on Re-development of a Co-operative Housing Society:

 

Arihant CHS Ltd. entered into an agreement with RajLaxmi Builders for redevelopment of their building. RajLaxmi Builders were to provide the following services to the members of Arihant CHS Ltd.:

 

1. Redevelopment Services

2. Construct 40 additional flats for sale to other buyers

3. Arrange for Rent payments of Rs. 35,000/- p.m. for each original member

4. To arrange for additional carpet area of 500 sq. ft. to each original member

 

The new building had 10 (old flats) +40 (new flats). The flats were all of 1500 sq. ft. The rate was 8,000 per sq. ft. Identify on which transaction will Service Tax apply (if any).

 

Solution:

 

In the given case, the land is owned by the society (i.e. Arihant CHS Ltd.), comprising of members of the society with each member entitled to his share by way of an apartment. The society has given the permission to RajLaxmi Builders to re-construct the society.

 

As per section 66E, a declared service includes, Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after the issuance of completion-certificate by the competent authority.


 

                                                            Development Rights

Builder/Developer  Members of Society


 (under taking the      

re-construction)         (i) Re-construction Service

                               (ii) Rental payments during the period of re-construction

       (iii) Additional Amount


Cash
 Construction of Flats   

 TAXABLE SERVICE




Buyers of new flats

 (ICAI Material)

Thus, the services provided by RajLaxmi Builders will be taxable as works contract service. The taxable GAC will be the value of all flats built now (i.e. 10+40 flats). Assuming that RajLaxmi Builders is not a proprietary concern or partnership firm or an AOP, the provisions of Reverse Charge will not apply and the whole of the service tax liability lies with the service provider. The abatement to the extent of 75% on GAC will be available to RajLaxmi Builders provided CENVAT credit on inputs, used is not taken.

 

Service Tax on Fixed Deposit given to Builder for sale of an under construction apartment:

 

Mr. Rajesh gives a Fixed Deposit of Rs. 30lakhs to Airview Builders for sale of an apartment in its new complex. Airview Builders were to encash the FD only on completion of the complex. It receives an interest @9% p.a. on the FD.

 

Solution:

 

As per section 66E, a declared service includes, Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after the issuance of completion-certificate by the competent authority.

 

Thus, consideration received by the builder, for construction of a complex will be liable to service tax. However, the answer to the question as to whether service tax is applicable on a transaction where the buyer of the flat gives the builder a fixed deposit which the builder can encash on completion of the complex is not clear and will depend on the nature and a complete study of such transaction. This maybe a colorable device wherein the consideration for provision of construction service is disguised as fixed deposit, which is unlikely to be returned.

 

In any case, the interest earned by the builder on such fixed deposit will be a significant amount received prior to the completion of the immovable property. Hence, the Interest received by Airview Builders would be considered as a part of the GAC for the provision of the service and the service of construction will be taxable.

 

Service Tax / VAT on Sale of Software:

 

Expert Software sells its Income Tax Software to its customers on a CD. Will such a transaction be liable to Service Tax or VAT?

 

Solution:

Section 66E covers development, design, programming, customization, adaptation, upgradation, enhancement and implementation of information technology software under the list of declared services. However, the following points have to be noted in reference to the sale of IT Software:

 

a)    Sale of pre-packaged or canned software

It is a settled position of law that pre-packaged or canned software which is put on a media is in the nature of goods. Sale of pre-packaged or canned software is, therefore, in the nature of sale of goods and is not covered in this entry. [Ref.: decision of the Supreme Court in the case of Tata Consultancy Services vs. State of Andhra Pradesh 2002(178) ELT 22(SC)]

 

b)    Site development of software

On site development of software is covered under the category of development of information technology software and hence, taxable.

 

c)     Providing advice, consultancy and assistance on matters relating to information technology software

These services may not be covered under the declared list entry relating to information technology software. However, such activities when carried out by a person for another for consideration would fall within the definition of service and hence chargeable to service tax if other requirements of taxability are satisfied.

 

d)    Providing a license to use pre-packaged software

As per the decision of the Supreme Court in the case of Tata Consultancy Services vs. State of Andhra Pradesh 2002(178) ELT 22(SC), in case a pre-packaged or canned software or shrink wrapped software is sold then the transaction would be in the nature of sale of goods and no service tax would be leviable.

 

This judgment is applicable in case the pre-packaged software is put on a media before sale. In such a case the transaction will go out of the ambit of definition of service as it would be an activity involving only a transfer of title in goods.

 

However, if a pre-packaged or canned software is not sold but is transferred under a license to use such software, the terms and conditions of the license to use such software would have to be seen to come to the conclusion as to whether the license to use packaged software involves transfer of ?right to use? such software in the sense the phrase has been used in sub-clause (d) of article 366(29A) of the Constitution.

 

Hence, the sale of Income Tax Software on a CD by Expert Softwares is not liable to Service tax, since pre-packaged or canned software which is put on a media is in the nature of sale of goods.

 

Service Tax on Renting of Bank Lockers by Banks:

 

Citibank gives its bank lockers on hire for a period ranging from 3 months to 20 years to its customer. Will such a transaction be liable to Service Tax?

 

Solution:

 

Section 66E covers Transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods.

 

In this case, Citibank is giving its lockers on hire to its customers for keeping their valuables in them. This transaction involves transfer of lockers (on hire) by Citibank to its customers, but does not involve the transfer of right to use these goods (i.e. lockers).

 

This is because the possession of the lockers is not transferred, even though the contents of the locker will remain in the possession of the customers of Citibank. Hence, the said transaction gets covered under declared services and will be liable to service tax.

 

Service Tax on Showcasing of Movies in Theatres:

 

Maxx mall gives its theaters on rent to Ashtavinayak (film distributors) for showcasing its film. They are to share the revenue generated on 60:40 basis. Will this transaction be liable to Service Tax?

 

Solution:

 

As per section 66E, a declared service includes, Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after the issuance of completion-certificate by the competent authority

 

This will cover Renting of all immovable properties, except those covered by the negative list or under the mega exemption list.

 

Thus, renting of theatres by owners to film distributors will also be covered since it amounts to renting of immovable property, even if it is under a profit sharing arrangement.

 


 

Service Tax on temporary transfer of Patents:

 

Indoco a pharmaceutical company transferred its patent (registered in China) on manufacture of a medicine for a period of 1 year to Aajanta Pharma in India. Will such a transaction be liable to Service Tax?

 

Solution:

 

Section 66E covers temporary transfer or permitting the use of or enjoyment of any intellectual property right under declared services.

 

Intellectual property right? has not been defined in the Act. The phrase has to be understood as in normal trade parlance as per which intellectual property right includes the following:

? Copyright

? Patents

? Trademarks

? Designs

? Any other similar right to an intangible property

 

There is no condition that the intellectual right must be registered in India.

 

Hence, the transfer of patent (registered in China) by Indoco to Ajanta Pharma for 1 year will be covered under declared services and thus liable to service tax.

 

 

Right to use the infrastructure of tower sites & shelter rooms by telecom companies:

M/s Primetime Associates were providing passive infrastructure along with mobile tower site and maintenance services to various mobile operators on sharing basis and allowing such operators to install antenna, microwave radios and Basic Transreceiver Station (BTS). For providing the said services it entered into identical agreements with Airtel, Vodafone and Loop.

 

The right, title, possession and control in the passive infrastructure located at the telecommunication site including any enhancement carried out by Primetime will be vested solely with it.

 

The right, title and interest in all such equipments installed on the site by the sharing operators remained with such operators only.

 

Will Primetime be liable to pay service tax or VAT or both on the above mentioned services?

 

Solution:

 

For VAT to be applicable on a certain transaction there must be sale of goods or deemed sale of goods [including the transfer of right to use the goods] as defined in Article 366(29A)(d) of the constitution.

In the given case, M/s Primetime Associates is offering its passives infrastructure and sharing its equipments with the telecom operators on a sharing basis. What it is expected to provide the mobile operator is, site access availability. On the execution of the contract, the operator has the right to install its equipments at the site. In other words, possession of the site is not handed over to the mobile operator. Mobile operator is only permitted to keep his installations in the property belonging to Primetime.

 

Through this contract there is no intention to transfer the right to use. Even after the execution of the contract the right, title and interest of the passive infrastructure will continue to remain with Primetime.

 

The right that is conferred on the mobile operator is a permission to have access to the passive infrastructure in the site belonging to the assessee, a permission to mount the antenna on the tower erected by the assessee and to have the benefit of a particular temperature so as to operate the equipments belonging to the mobile operator.

 

Thus, no sale of goods or deemed sale of goods as stated in the Article 366(29A)(d) of the constitution is involved. Hence, in the given case VAT is not applicable.

 

Section 66E of the Finance Act, covers transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods under the list of declared services on which service tax will be applicable.

 

As seen from the facts of the case, Primetime will be liable to pay service tax on the above transaction since it gets covered under the definition of declared services.

[Ref.: caselaw - Indus towers ltd. V/s Deputy Commissioner of Commercial Taxes, Bangalore (HC, Karnataka) (2013) 38 STT]