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Declared Services

Contents

I. Is renting of all kinds of immovable properties taxable?. 1

II. Are there any exemptions in respect of renting of immovable property?. 2

III. Would permitting usage of a property for a temporary purpose like conduct of a marriage or any other social function be taxable?. 2

IV. Would activities referred to in column 1 of a table below be chargeable to service tax?. 2

V. When a certain number of flats are given by the builder/developer to a land owner in a collaborative agreement to construct, in lieu of the land or development rights transferred, will such transferee be required to pay service tax on further sale of flats to customers?. 2

VI. What would be the service tax liability on conversion of any hitherto untaxed construction of complex or part thereof into a building or civil structure to be used for commerce or industry, after lapse of a period of time?. 3

VII. If the builder instead of receiving consideration for the sale of an apartment receives a fixed deposit, which it converts after the completion of the building into sales consideration, will it amount to receiving any amount before the completion of service.. 3

VIII. In certain States requirement of completion certificate are waived of for certain specified types of buildings. How would leviability of service tax be determined in such cases?. 3

IX. Is the IPR required to be registered in India? Would the temporary transfer of a patent registered in a country outside India also be covered under this entry?. 3

X. In case contract is given for customized development of software and the customized software so developed is delivered to the client on media like a CD then would the transaction fall in this declared entry or would it be covered by the TCS Judgment?.. 3

XI. If delivery of goods on hire purchase or any system of payment on instalment is deemed to be sale of goods what are the activities in relation to such delivery which are covered in the declared service?. 4

XII. Whether the transactions listed in column 1 of the table below involve transfer of right to use goods? 5

XIII. Would non-compete agreements be considered a provision of service?. 5

XIV. Would labour contracts in relation to a building or structure be treated as a works contract?. 5

XV. Is the definition of ‘works contract’ in clause (54) of section 65B in line with the definition of ‘works contract’ in various State VAT laws?. 6

XVI. Are services provided by any kind of restaurant, big or small, covered in this entry?. 6

 

 


 

     I.        Is renting of all kinds of immovable properties taxable?

[Point 6.1.1 of the text of Education Guide issued by the CBEC]

 

No. Renting of certain kinds of immovable properties is specified in the negative list. These are –

·         renting of vacant land, with or without a structure incidental to its use, relating to agriculture. (Sl. no. (d) (iv) of Exhibit A1)

·         renting of residential dwelling for use as residence (Sl. No. (m) of Exhibit A1)

·         renting out of any property by the Reserve Bank of India

·         renting out of any property by a Government or a local authority to a non-business entity.

·         Renting of all other immovable properties would be taxable unless covered by an exemption

 

    II.        Are there any exemptions in respect of renting of immovable property?

[Point 6.1.2 of the text of Education Guide issued by the CBEC]

 

Yes. These are:

·         Threshold level exemption up to Rs. 10 lakh.

·         Renting of precincts of a religious place meant for general public.

·         Renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a room below rupees one thousand per day or equivalent.

·         Renting to an exempt educational institution

 

   III.        Would permitting usage of a property for a temporary purpose like conduct of a marriage or any other social function be taxable?

[Point 6.1.3 of the text of Education Guide issued by the CBEC]

 

Yes. As per definition allowing or permitting usage of immovable property, without transferring possession of such property, is also renting of immoveable property.

 

 

 

 

   IV.        Would activities referred to in column 1 of a table below be chargeable to service tax?

[Point 6.1.4 of the text of Education Guide issued by the CBEC]

 

Sr. No.

Journey

Taxability

1.     

Renting of property to an educational body

Exempted if provided to an educational institution for the purpose of education which is exempt from

the levy of service tax; to others will be taxable.

2.     

Renting of vacant land for animal husbandry or floriculture

Not chargeable to service tax as it is covered in the negative list entry relating to agriculture

3.     

Permitting use of immoveable property for placing vending/dispensing machines

Chargeable to service tax as permitting usage of space is covered in the definition of renting

4.     

Allowing erection of a communication tower on a building for consideration.

Chargeable to service tax as permitting usage of

space is covered in the definition of renting

5.     

Renting of land or building for entertainment or sports

Chargeable to service tax as there is no specific exemption

6.     

Renting of theatres by owners to film distributors (including under a profit- sharing arrangement)

Chargeable to service tax as the arrangement amounts to renting of immovable property.

 

 

    V.        When a certain number of flats are given by the builder/developer to a land owner in a collaborative agreement to construct, in lieu of the land or development rights transferred, will such transferee be required to pay service tax on further sale of flats to customers?

[Point 6.2.3 of the text of Education Guide issued by the CBEC]

 

Yes. The service tax will be required to be paid by such transferee if any consideration is

received by him from any person before the receipt of completion certificate.

 

 

   VI.        What would be the service tax liability on conversion of any hitherto untaxed construction of complex or part thereof into a building or civil structure to be used for commerce or industry, after lapse of a period of time?

[Point 6.2.4 of the text of Education Guide issued by the CBEC]

 

Mere change in use of the building does not involve any taxable service. If the renovation activity is done on such a complex on contract basis the same would be a works contract as defined in clause (54) of section 65B service portion, which would also be taxable if other ingredients of taxability are present.

 

 

VII.        If the builder instead of receiving consideration for the sale of an apartment receives a fixed deposit, which it converts after the completion of the building into sales consideration, will it amount to receiving any amount before the completion of service.

[Point 6.2.6 of the text of Education Guide issued by the CBEC]

 

This may be 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 deposits will be a significant amount received prior to the completion of the immovable property. Interest in such cases would be considered as part of the gross amount charged for the provision of service and the service of construction will be taxable.

 

 

 

VIII.        In certain States requirement of completion certificate are waived of for certain specified types of buildings. How would leviability of service tax be determined in such cases?

[Point 6.2.7 of the text of Education Guide issued by the CBEC]

 

In terms of Explanation to clause (b) of section 66E in such cases the completion certificate issued by an architect or a chartered engineer or a licensed surveyor of the respective local body or development or planning authority would be treated as completion certificate for the purposes of determining chargeability of service tax.

 

   IX.        Is the IPR required to be registered in India? Would the temporary transfer of a patent registered in a country outside India also be covered under this entry?

[Point 6.3.2 of the text of Education Guide issued by the CBEC]

 

Since there is no condition regarding the law under which an intellectual right should be registered, temporary transfer of a patent registered outside India would also be covered in this entry. However, it will become taxable only if the place of provision of service of temporary transfer of intellectual property right is in taxable territory.

 

 

    X.        In case contract is given for customized development of software and the customized software so developed is delivered to the client on media like a CD then would the transaction fall in this declared entry or would it be covered by the TCS Judgment?.

[Point 6.4.5 of the text of Education Guide issued by the CBEC]

 

In such a case although the software is finally delivered in the form of goods, since the contract is essentially for design and development of software it would fall in the declared list entry. Such a transaction would be in the nature of composite transaction involving an element of provision of service, in as much as the contract is for design and development of software and also an element of transfer of title in goods, in as much as the property in CD containing the developed software is transferred to the client. However, the CD remains only a media to transmit or deliver the outcome of which is essentially and pre-dominantly a contract of service. Therefore, such a transaction would not be excluded from the ambit of the definition of ‘service’ as the transaction does not involve ‘only’ transfer of title in goods and dominant nature of the transaction is that of provision of service.

 

 

   XI.        If delivery of goods on hire purchase or any system of payment on instalment is deemed to be sale of goods what are the activities in relation to such delivery which are covered in the declared service?

[Point 6.5.5 of the text of Education Guide issued by the CBEC]

 

It has been held by Supreme court in the case of Association Of Leasing & Financial Service Companies Vs Union Of India[2010 (20) S.T.R. 417 (S.C.)] that in equipment leasing / hire purchase agreements there are two different and distinct transactions, viz., the financing transaction and the equipment leasing/hire-purchase transaction and that the financing transaction, consideration for which was represented by way of interest or other charges like lease management fee, processing fee, documentation charges and administrative fees, which is chargeable to service tax. Therefore, such financial services that accompany a hire purchase agreement fall in the ambit of this entry of declared services.

 

 


 

XII.        Whether the transactions listed in column 1 of the table below involve transfer of right to use goods?

[Point 6.6.2 of the text of Education Guide issued by the CBEC]

 

Sr. No.

Nature of Transaction

Whether transaction involves transfer of right to use

1.     

A car is given in hire by a person to a company along with a driver on payment of charges on per month / mileage basis

Right to use is not transferred as the car owner retains the permissions and licenses relating to the cab. Therefore possession and effective control remains with the owner (Delhi High Court Judgment in the case of International Travel House in Sales Tax Appeal no 10/2009 refers). The service is, therefore covered in the declared list entry.

2.     

Supply of equipment like excavators, wheel loaders, dump trucks, cranes, etc for use in a particular project where the person to whom such equipment is supplied is subject to such terms and conditions in the contract relating to the manner of use of such equipment, return of such equipment after a specified time, maintenance and upkeep of such equipment.

 

 

The transaction will not involve transfer of right to use such equipment as in terms of the agreement the possession and effective control over such equipment has not been transferred even though the custody may have

been transferred along with permission to use such equipment. The receiver is not free to use such equipment in any manner as he likes and conditions have been imposed on use and control of such equipment.

3.     

Hiring of bank lockers

The transaction does not involve the right to use goods

as possession of the lockers is not transferred to the

hirer even though the contents of the locker would be in

the possession of the hirer.(refer to Andhra Pradesh

High Court Judgment in the case of State Bank of India

Vs State of Andhra Pradesh)

4.     

Hiring out of vehicles where it is the responsibility of the owner to abide by all the laws relating to motor vehicles

No transfer of right to use goods as effective control and possession is not transferred ( Allahabad High Court judgement in Ahuja Goods Agency vs State of UP [(1997)106STC540] refers)

5.     

Hiring of audio visual equipment where risk is of the owner

No transfer of right to use goods as effective control and possession is not transferred

 

 

 

 

XIII.        Would non-compete agreements be considered a provision of service?

[Point 6.7.1 of the text of Education Guide issued by the CBEC]

 

Yes. By virtue of a non-compete agreement one party agrees, for consideration, not to compete with the other in any specified products, services, geographical location or in any other manner. Such action on the part of one person is also an activity for consideration and will be covered by the declared services.

 

XIV.        Would labour contracts in relation to a building or structure be treated as a works contract?

[Point 6.8.1 of the text of Education Guide issued by the CBEC]

 

No. Labour Contracts do not fall in the definition of works contract. It is necessary that there should be transfer of property in goods involved in the execution of such contract which is leviable to tax as sale of goods. Pure labour contracts are therefore not works contracts and

would be leviable to service tax like any other service and on full value.

 

 

 

XV.        Is the definition of ‘works contract’ in clause (54) of section 65B in line with the definition of ‘works contract’ in various State VAT laws?

[Point 6.8.6 of the text of Education Guide issued by the CBEC]

 

The definition of ‘works contract’ in clause (54) of section 65B covers such contracts which involve transfer of property in goods and are for carrying out the activities specified in the said clause (54) in respect of both moveable and immoveable properties. This is broadly in consonance with the definition of ‘works contract’ in most of the State VAT laws. However, each State has defined ‘works contracts’ differently while dealing with works contract as a category of deemed sales. There could, therefore, be variations from State to State. For service tax purposes the definition in clause (54) of section 65B would alone be

applicable.

 

 

XVI.        Are services provided by any kind of restaurant, big or small, covered in this entry?

[Point 6.9.2 of the text of Education Guide issued by the CBEC]

 

Yes. Although services provided by any kind of restaurant are covered in this entry, the emphasis is to levy tax on services provided by only such restaurants where the service portion in the total supply is substantial and discernible. Thus the following category of restaurants are exempted –

·         Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having the facility of air-conditioning or central airheating in any part of the establishment, at any time during the year, and which has a license to serve alcoholic beverage.

·         Below the threshold exemption