Clause (g) of section 66E declares activity in relation to delivery of goods on hire purchase or any system of payment by installments as taxable service.
For the purpose of this clause, the following two aspects must be noted:
The services must be in relation to delivery of goods;
The said delivery of goods must be on hire purchase or any system of payment by installments.
Provision relating to Negative List
Hire purchase and leasing services are not specified under section 66D of the Finance Act, 1994. However, renting or leasing of agro machinery or vacant land with or without a structure incidental to its use has been included in Negtive list.
Provisions relating to exemptions
Small Service Provider
Vide Notification No 33/2012-ST, dated 20.06.2012 – Exemption to Small service providers having taxable turnover of less than 10 Lakhs and providing services other than by way of under a brand name.
Import of Technology
Vide Notification No. 14/ 2012-ST, dated March 17, 2012 – Exemption in respect of Taxable service involving import of technology, from so much of service tax, as is equivalent to the extent of amount of R&D Cess payable on the said transfer of technology under the provisions of section 3 of the Research and Development Cess Act, 1986.
To Foreign Diplomatic missions and their personnel
Vide Notification No 27/2012-ST, dated 20.06.2012 – Exemption for all the taxable services provided by any person, for the official use of a foreign diplomatic mission or consular post in India, or for personal use or for the use of the family members of diplomatic agents or career consular officers posted therein.
Services by TBI or STEP
Vide Notification No 32/2012-ST, dated 20.06.2012 – All taxable services provided by TBI or STEP have been exempted
Services provided to SEZ
Vide Notification No 40/2012-ST, dated 20.06.2012, all taxable services received by a Unit located in a Special Economic Zone (SEZ) or Developer of SEZ for the authorized operations, has been exempted from the levy of whole of the service tax.
Entry 22 of Notification No. 25/2012-Service Tax dated 20.06.2012:
Services by way of giving on hire –
(a) to a state transport undertaking, a motor vehicle meant to carry more than twelve passengers; or
(b) to a goods transport agency, a means of transportation of goods;
Provisions relating to Valuation and Abatement
In the case of Hire purchase and leasing services, the service provider has the option either to avail the benefit of Notification No. 26/2012 dated 20-06-2012 through which the value of taxable services shall be 10 per cent of gross amount charged or he may forgo the abatement and pay the service tax on entire value.
The nature of service described in serial no. 1 of Notification No. 26/2012 dated 20-06-2012 is “service in relation to financial leasing including hire-purchase”.
In case the service provider forgoes the abatement and pays service tax on the entire value, he will be entitled to the benefit of Cenvat Credit on all input, input services and capital goods.
Provisions relating to Cenvat Credit
The Credit is available to the service provider of the duty or tax paid on ‘capital goods’, ‘inputs’ and ‘input services’.
Since, item no. 1 of Notification No. 26/2012-ST, dated 20-06-2012 provides that the value of taxable services shall be 10% of the gross amount charged. Further, this notification does not imposes any restriction for availing Cenvat credit on inputs, input services, and capital goods. Thus, even if the service provider opts for abatement, cenvat credit will be available.
Provisions relating to point of taxation
As per Rule 3 of Point of Taxation Rules, 2011, the point of taxation shall be-
Time when the invoice for the service provided or to be provided is issued. As per Rule 4A of Service Tax Rules, invoice shall be issued within 30 days from the date of completion of service. In case invoice is not issued within 30 days from the completion of service, the point of taxation shall be the date of completion of service.
In case where the person providing the service receives payment before the time specified above, the date of receipt of payment shall be the point of taxation.
Provisions relating to Place of Provision of Service Rules, 2012
The Place of Provision of Service Rules, 2012 contains different rules for different nature of services. Since no specific Rule applied to such services, the place of provision shall fall under Rule 3 which provides that location of service receipient shall determine place of provision of such services. Thus, if the receipient is within taxable territory, place of provision shall be within taxable territory and taxable, else, non taxable.
Provisions relating to reverse charge
Hire purchase and leasing services are not included under the mechanism of Reverse Charge. Hence, the person providing the service shall be the person liable to pay service tax.