Advertising Agency’s Service
Statutory Definition of Service liable to tax
When the tax was levied: 1-11-1996
What is liable to tax
1 Any service provided or to be provided to any person, by an advertising agency (see 2) in relation to advertisement (see 3) in any manner [section 65(105)(e)]
2 “Advertising agency” means any person (earlier, the words were‘commercial concern’ upto 1-5-2006) engaged in providing any service connected with the making, preparation, display or exhibition of advertisement and includes an advertising consultant [section 65(3)].
3 “Advertisement” includes any notice, circular, label, wrapper, document, hoarding or any other audio or visual representation made by means of light, sound, smoke or gas [section 65(2)]
Coverage & Service liable to tax
What is covered
o Preparation of advertisement material, hoardings, neon signs etc., Preparation of advertisement films
o Getting advertisements published in newspapers or TV or cinema theatres or by way of hoarding, neon signs etc.
o DAVP may be liable to service tax, as ‘any person’ can be ‘Advertising Agency’.
What is not covered?
o Preparation of advertisement material, sign boards, hoardings (as it is sale of goods).
o Sale of TV rights, sponsorship money and logo money is not ‘advertising agency’ service.
What is covered under different head?
o Display of advertisement on web, cinema theatre, commercial time on TV are taxable under ‘Sale of space or time for advertisement’
o Advertisement in yellow pages and business directories is taxable under‘Sale of space or time for advertisement’
o Canvassing i.e. space selling is taxable under Business Auxiliary Service.
o Rental charges for space are covered under ‘Sale of space or time for advertisement’
Valuation
o Tax only on commission, not on advertisement charges paid to media or TV.
o Service tax is not payable on discount or incentives received from media
Other issues
Accounting Code - Service Tax: 00440013.
Payment of interest, penalty, etc.: 00440016.
Rule for determining export or import of service: 3(iii)
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Air Travel Agent’s Services
Air Travel Agent’s Services
Statutory Definition of Service liable to tax
When the tax was levied: 1-7-1997
What is liable to tax
1 Any service provided or to be provided to any person, by an air travel agent (see 1) in relation to the booking of passage for travel by air [section 65(105)(1)]
2 ‘Air travel agent’ means any person engaged in providing any service connected with the booking of passage for travel by air [Section 65(4)].
Coverage & Service liable to tax
What is covered
Booking of passage by air
Sub-agents also liable.
What is covered under different head?
GSA (General Sales Agent) appointed by foreign airlines are taxable under‘Business Auxiliary Service’
Hotel booking under Tour Operator Service
Valuation
Tax on commission not on airfare
Option to pay service tax @ 0.60% of basic fare in case of domestic booking and @ 1.20% of the basic fare in case of international bookings, of passage for travel by air, during any calendar month, plus education cess @ 2% and SAH education cess @ 1%. Option cannot be changed during a financial year [Rule 6(7)]
Other issues
Accounting Code - Service Tax: 00440032.
Payment of interest, penalty, etc.: 00440033.
Rule for determining export or import of service: 3(ii)
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Architect’s Services
Statutory Definition of Service liable to tax
When the tax was levied: 16-10-1998
What is liable to tax
1 Any service provided or to be provided to any person, by an architect [see 2] in his professional capacity in any manner [Section 65(105)(p)]
2 “Architect” means any person whose name is, for the time being, entered in the register of architects maintained under section 23 of the Architects Act, 1972 and also includes any commercial concern engaged in any manner, whether directly or indirectly, in rendering services in the field of architecture [Section 65(6)]
Coverage & Service liable to tax
What is covered
Designing or planning of construction of buildings, bridges, dams etc.
Services concerning planning, design or beautification of spaces.
What is not covered?
Actual execution of work is not Architect’s service.
Valuation
No service tax is payable on supply of materials, items of furniture or decoration.
Other issues
Accounting Code - Service Tax: 00440072.
Payment of interest, penalty, etc.: 00440073.
Rule for determining export or import of service: 3(ii)
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Authorised Service Station’s Services
Statutory Definition of Service liable to tax
When the tax was levied: 16-7-2001 and scope expanded later.
What is liable to tax
1 Any service provided or to be provided to any person, by an authorised service station [see 2], in relation to any service, repair, reconditioning or restoration of motor cars [see 3], light motor vehicles [see 4] or two wheeled motor vehicles, in any manner [section 65(105)(zo)]
2 “Authorised service station” means any service station, or centre, authorised by any motor vehicle manufacturer, to carry out any service, repair, reconditioning or restoration of any motor car, light motor vehicle or two wheeled motor vehicle manufactured by such manufacturer [Section 65(9)]
3 ‘Motor car’ means any motor vehicle other than a transport vehicle, omnibus, road-roller, tractor, motor cycle or invalid carriage [Section 65(72) read with MV Act]. (It would cover cars, jeep or vans).
4 Light Motor Vehicle (LMV) means any motor vehicle constructed or adapted to carry more than six passengers, but not more than twelve passengers, excluding the driver [section 65(62)].
5 ‘Motor vehicle’ means any mechanically propelled vehicle adapted for use upon roads, whether the power or propulsion is transmitted thereto from internal or internal source and includes a chassis to which a body has not been attached and a trailer; but does not include a vehicle run on fixed rails or a vehicle of special type adapted for use only in a factory or in any other enclosed premises or a vehicle having less than four wheels fitted with engine capacity of not exceeding thirty five cubic centimeters [section 65(73) read with section 2(28) of MV Act].
Coverage & Service liable to tax
What is covered
Any service, repair, reconditioning or restoration of motor car, LMV, two wheelers
Free services during warranty for which reimbursement is obtained from manufacturers
What is not covered?
Service provided at the time of purchase of new vehicle.
Free services at the time of sale for which no payment received.
Service to transport vehicle, LMV for carrying goods, buses, trucks, excavator, omnibus, road-roller, tractor, or invalid carriage.
What is covered under different head?
Commission or rent paid by finance or insurance companies to vehicle dealers under BAS or renting of immovable property as the case may be.
Valuation
No service tax on sale of spare parts
Cost of paint used in painting or consumables is includible in ‘value’ (i.e. no deduction)
Other issues
Accounting Code - Service Tax: 00440181.
Payment of interest, penalty, etc.: 00440182.
Rule for determining export or import of service: 3(ii)
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BANKING AND OTHER FINANCIAL SERVICES
Statutory Definition of Service liable to tax
When the tax was levied: 16-7-2001 and scope expanded later.
What is liable to tax
1 Any service provided or to be provided to any person, by a banking company or a financial institution including NBFC, or any other body corporate or commercial concern, in relation to banking and other financial services [see 3] [section 65(105)(zm)]
2 Any service provided or to be provided to any person, by a foreign exchange broker, including an authorised dealer in foreign exchange or an authorised money changer (other than those covered in para 5.1) [Section 65(105)(zzk)]
3 “Banking and other financial services” means –
(a) the following services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern, namely -
(i) Financial leasing services including equipment leasing and hire-purchase.
Explanation. – For the purposes of this item, “financial leasing” means a lease transaction where–
(i) contract for lease entered into between two parties for leasing of a specific asset
(ii) such contract is for use and occupation of the asset by the lessee
(iii) the lease payment is calculated so as to cover the full cost of the asset together with the interest charges; and
(iv) the lessee is entitled to own, or has the option to own, the asset at the end of the lease period after making the lease payment
(ii) (Omitted)
(iii) Merchant banking services;
(iv) Securities and foreign exchange (forex) broking; and purchase or sale of foreign currency including money changing
(v) Asset management including portfolio management, all forms of fund management, pension fund management, custodial, depository and trust services
(vi) Advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisitions and advice on corporate restructuring and strategy;
(vii) Provision and transfer of information and data processing;
(viii) Banker to an issue services;
(ix) Other financial services namely, lending; issue of pay order, demand draft, cheque, letter of credit and bill of exchange; transfer of money including telegraphic transfer, mail transfer and electronic transfer, providing bank guarantee, overdraft facility, bill discounting facility, safe deposit locker, safe vaults; operation of bank accounts.
(b) foreign exchange broking and purchase or sale of foreign currency, including money changing provided by a foreign exchange broker or an authorised dealer in foreign exchange or an authorised money changer, other than those covered under sub-clause (a)
Explanation.— For the purposes of this clause, it is hereby declared that‘purchase or sale of foreign currency, including money changing’includes purchase or sale of foreign currency, whether or not the consideration for such purchase or sale, as the case may be, is specified separately [Section 65(12)]
Coverage & Service liable to tax
What is covered
All services as specified in para 3 These cover financial leasing, merchant banking, foreign exchange broking, asset management, advisory and other auxiliary financial services, banker to an issue, lending, DD, LC, money transfer, bank guarantee, bill discounting, safe vaults, operation of bank accounts.
Cash management
Back commission, loan application processing charges.
Cooperative Banks liable.
What is not covered?
Hire purchase taxable but not hire purchase finance.
As per Board circular, Simple chit funds not taxable but business chit funds taxable. This circular has been quashed by AP High Court.
No service tax on entry and exit load charged by mutual fund to the investor [now, as per SEBI, no entry load w.e.f. 1-8-2009]
Basic postal services not covered but courier, insurance or agency services taxable.
What is covered under different head?
Operating lease or hire taxable under ‘supply of tangible goods for use’service.
Valuation
Option to pay service tax calculated at the rate of 0.25% of the gross amount of foreign currency exchanged [Rule 6(7B)].
Exemptions
Services provided to Government for tax collection exempt - Notification No. 13/2004-ST dated 10-9-2004.
Services provided by RBI exempt – Notification No. 22/2006-ST dated 31-5-2006 (services provided to RBI are not exempt)
No service tax on interest on loans - rule 6(2)(iv)
Interest on overdraft, cash credit facility and discounting of bills/bills of exchange/cheques is exempt - Notification No. 29/2004-ST dated 29-9-2004
Tax on financial leasing only on 10% of interest plus management fee, processing fee, documentation charges and administration charges -Notification No. 4/2006-Service Tax dated 1.3.2006.
Tax on service of business chit fund is payable on 70% of value -Notification No. 1/2006-ST dated 27-5-2008 [The levy has been quashed by AP HC]
Inter-bank transactions of purchase and sale of foreign currency are exempt from service tax w.e.f. 7-7-2009, when undertaken by scheduled banks –Notification No. 19/2009-ST dated 7-7-2009.
Other issues
Invoice need not be serially numbered and name and address of person receiving service need not be mentioned [proviso to rule 4A(1) of Service Tax Rules]
Accounting Code - Service Tax: 00440173.
Payment of interest, penalty, etc.: 00440174.
Rule for determining export or import of service: 3(iii)
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‘BUSINESS AUXILIARY SERVICE’
Statutory Definition of Service liable to tax
When the tax was levied: 1-7-2003 and scope expended later. Commission agent taxable w.e.f. 9-7-2004.
What is liable to tax
1 Any service provided or to be provided to a client, by any person in relation to business auxiliary service [see 2] [section 65(105)(zzb)].
2 ‘Business auxiliary service’ 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;
Explanation.— For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, “service in relation to promotion or marketing of service provided by the client” includes any service provided in relation to promotion or marketing of games of chance, organised, conducted or promoted by the client, in whatever form or by whatever name called, whether or not conducted online, including lottery, lotto, bingo or
(iii) any customer care service provided on behalf of the client; or
(iv) procurement of goods or services, which are inputs for the client; orExplanation - For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, “inputs” means all goods or services intended for use by the client
(v) production or processing of goods for, or on behalf of, the client; or
(vi) provision of service on behalf of the client; or
(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, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision,
and includes services as a commission agent, but does not include any activity that amounts to manufacture of excisable goods
and includes services as a commission agent, but does not include any activity that amounts to “manufacture” within the meaning of clause (f) of section 2 of the Central Excise Act, 1944
Explanation - For the removal of doubts, it is hereby declared that for the purposes of this clause,—
(a) “Commission agent” means any person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration, and includes any person who, while acting on behalf of another person — (i) deals with goods or services or documents of title to such goods or services; or
(ii) collects payment of sale price of such goods or services; or
(iii) guarantees for collection or payment for such goods or services; or
(iv) undertakes any activities relating to such sale or purchase of such goods or services.
(b) -- Omitted [Section 65(19)]
Coverage & Service liable to tax
What is covered
Services as specified in para 2 like promotion or marketing of goods or services, customer care service, procurement of goods or services for client, production or processing of goods (which is not ‘manufacture’),providing service on behalf of client and specified incidental services.
Service of commission agents.
Purchase agents.
Sale of lottery tickets (issue is debatable)
Celebrities acting as Brand ambassadors [ordinary models may not be covered]
Processing of loan papers and verifying documents for Bank [contrary decision that service to Bank of analyzing credentials of customers who approached them for retail finance is not taxable]
Call centers and transcription centres.
Sub-contractor providing service on behalf of client.
Commission of mutual fund agents.
Commission paid to auto dealers by finance companies and NBFC.
Del credere agent.
Back office processing relating to sale, production or marketing.
Bottling and packing of liquor is manufacture but goods are to ‘excisable’ and hence service tax is payable.
What is not covered?
Job work if it amounts to ‘manufacture’ of ‘excisable goods’ is not taxable, even if not done under Cenvat provisions
Commission paid by company to its directors (even if linked with performance or with financial results of the company) not taxable.
Same principle will apply to commission paid to salesmen.
Service of collection of blood samples and sending the same to principal lab.
Dharamkanta i.e. issuing weighment slip is not Business Auxiliary Service.
Purchase and sale of goods.
Ginning and pressing of cotton.
Contract hatching of eggs.
Trading in service is not provision of service.
What is covered under different head?
Collection of bills may be covered under Recovery Agent’s service
Packaging will get covered under ‘Packaging Activity’ service.
Stock Exchanges, commodity exchanges, stock clearing house services taxable under different head.
Valuation
Tax payable on gross value of services
Exemptions
Following services in relation to agriculture, printing, textile processing or education are fully exempt –
(a) procurement of goods or services, which are inputs for the client; or
(b) production or processing of goods for, or on behalf of, of the client; or
(c) provision of service on behalf of the client; or
(d) service incidental or auxiliary to any activity specified in sub-clauses (a) to (c) above [Notification No. 14/2004-ST dated 10-9-2004].
Job work exempt if the goods after processing are returned back to client (raw material supplier) for use in or in relation to manufacture of ‘other goods’ by the client. The ‘other goods’ should be such that appropriate duty should be payable on such goods - Notification No. 8/2005-ST dated 1-3-2005.
Job workers of parts and accessories of cycles, cycle rickshaws and hand operated sewing machines have to pay service tax is payable on 70% of gross amount if gross amount is inclusive of cost of inputs and input services. The ‘exemption’ is available if job worker does not avail anyCenvat Credit – Notification No. 1/2006-ST dated 1-3-2006.
Services of commission agents in relation to sale or purchase of agricultural produce are exempt - Notification No. 13/2003-ST dated 20-6-2003.
Job work done in gem, jewellery and diamonds sector are exempt -Notification No. 21/2005-ST dated 7-6-2005.
Job work in respect of pharmaceutical products exempted –
Exemption has been granted to business auxiliary services in relation to manufacture of pharmaceutical products, medicines, perfumery, cosmetics or toilet preparations containing alcohol which are charged to excise duty under Medical and Toilet Preparations (Excise Duties) Act, 1955 have been fully exempted from service tax - Notification No. 32/2009-ST dated 1-9-2009.
Sub-broker on stock exchange exempted from BAS - Services of sub-broker are not liable under ‘stock broker’ service w.e.f. 1-9-2009. They have also been exempted under Business Auxiliary Service also videNotification No. 31/2009-ST dated 1-9-2009. Thus, they are completely out of service tax net.
Other issues
Accounting Code - Service Tax: 00440225.
Payment of interest, penalty, etc.: 00440226.
Rule for determining export or import of service: 3(iii)
Disclaimer: In this note, we have attempted to summarise some of the significant aspects to be kept in mind by readers to ensure compliance of tax laws and regulations. Readers should ensure to verify specific provisions as applicable to each case before taking any business decisions. It would be pertinent to note that some changes are being made to the tax laws and rules and regulations on a continuous basis by way of notifications, clarifications etc issued by the department based on their practical experience in implementing the legislation.
It may be noted that nothing contained in this note should be regarded as our opinion. Professional advice should be sought for applicability of legal provisions based on specific facts. Though reasonable efforts have been taken to avoid errors or omissions in this note we are not responsible for any liability arising to readers directly or indirectly due to any mis-statements or error contained in this note. It must be noted that the views expressed in the note are based on our understanding of the law and regulations as published by the Government authorities and we may or may not agree or subscribe to such views.
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