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Business Auxiliary Service- Service wise Implications- GST India Guide

Business Auxiliary Service

  • Understanding the services

The service primarily included within its ambit the services of commission agents who help in procuring inputs for business or promote sales and earn commission from such sale of goods and services.  In either goods they are mere intermediary of such goods and services but they do not procure or sell any goods or services in their own capacity but only as agent of some other person.  Another prominent category of persons who come within the ambit of this service are job workers or processors who make or processes goods (and such activity do not amount to manufacture) for others.

  • Accounting codes

Such codes are no longer statutory but used for statistical purpose for the purpose of registration and for payment of tax as specified vide Circular No.165/16/2012 –ST dated 20.11.2012:

 

Tax Collection of Service Interest and penalties on such service
00440225 00440226

  • Taxability as settled by precedents / Circulars / Trade notices

ActivityWhether falls within the scope of present serviceReference
Procurement of orders for a principal on commission basisYesLarsen & Toubro Ltd Vs CCE [2006 (3) S.T.R. 321 (Tri. - LB)]
Sharing staff costs and other expenses between two group companiesYesGlaxoSmithkline Pharmaceutical Ltd Vs CCE [2005 1 STT 37]
Sale price of SIM CardsNoBharat Communications v. CCE [2009 23 STT 37]
Overriding commission received from the foreign airlinesYesETA Travel Agency (P) Ltd V CCE [2007 9 STT 370]
Newspaper sales promotion serviceYesMargadarsi Marketing (P) Ltd V CCE [ 2010 27 STT 153]
Verification of records and information submitted by person seeking loans from bankNoS.R. Kalyanakrishnan v CCE [2008 (9) S.T.R. 255 (Tri. - Bang.)]
Evaluation of prospective customers, processing of purchase orders, customer management, information and tracking of delivery schedules, accounting and processing of transactions, operational assistance for marketing, formulation of customer service and pricing policies, managing distribution and logistics. The services provided in relation to getting a customer, verification of prospective customer, processing of purchase order etcYesPara 2.1 of Circular No. 59/8/2003, dated 20-6-2003
Service tax on commission income earned on distribution and marketing of units of mutual fundYesCBEC Circular No. 66/15/2003-ST, dated 5-11-2003
Payroll-processing, accounts, management, etc., even by using computer programmes, cannot be termed as activities primarily in relation to computer systems. The use of computer in these services is secondary and the primary activity is that of business-related work.YesCircular No. 62/11/2003-ST, DATED 21-8-2003
the procurements of input, capital goods or input services as defined in the CENVAT Credit Rules, by a commercial concern for a client i.e. a person producing goods or providing servicesYesParas 18.1 to 18.3 of Circular No. 80/10/2004-S.T., dated 17-9-2004
Production of goods on behalf of the client if such production activity does not amount to manufactureYesCircular F.No. 341/13/2005-TRU, dated 12-5-2005
Commission paid to employeesNoCircular letter dy. no. 324/Comm (ST)/2008, dated 1-12-2008 (issued from File c. no. iv/16/06/2009-stu)/trade notice no. 15/2009, dated 13-3-2009, Madurai Commissionerate
Distributors receive commission from mutual fund for providing services relating to purchase and sale of Mutual fund units. Services provided by such distributors are in the nature of commission agentYesCircular No. 96/7/2007-ST, dated 23-8-2007, as amended by Circular No. 98/1/2008-ST, dated4-1-2008
1.                       
Service rendered by ship broker is leviable to service tax under Business Auxiliary ServiceYesBoard’s letter F.No.332/41/2008-TRU, dated 19-12-2008 (Issued from File C.No. IV/16/06/2009-STU)/trade notice no. 16/2009, dated 13-3-2009, Madurai Commissionerate
To retain the container beyond the pre-holding period is neither a service provided on behalf of the client (Business Auxiliary Service) nor is it an infrastructural support in the business of either the shipping lines or the customer (Business Support Service). Such charges can at best be called as ‘penal rent’ for retaining the containers beyond the pre-determined periodNoCircular No. 121/3/2010-ST, dated 26-4-2010
the arrangement between the Insurance company and the reinsurer is only sharing of expenses and there is no service provided by the insurance company to the re-insurer for a considerationNoCircular No. 120(a)/2/2010-ST, dated 16-4-2010

  • Value of Taxable Service

Section 67 read along with Service Tax (Determination of Value) Rules, 2006 provides the manner of determining the value of taxable services on which services tax should be levied.

In respect of Business Auxiliary Services, no specific provision for determination of taxable value has been provided.  However it has been clarified that the value of taxable services is the total amount of consideration consisting of all components of the taxable service and it is immaterial that the details of individual components of the total consideration are indicated separately in the invoice. Thus, the value of taxable Business Auxiliary Services is to be determined in terms of provision of Section 67 read with the prescribed Rules.

  • Determination of Value

In case of job works qualifying as works contract, Service Tax is to be paid on service portion of such works contracts.  Rule 2A of Determination of Value Rules provides that when value has not been determined at actual, the adhoc value which can be adopted is as under (Effective October 1, 2014):

Type of Works ContractManner of computation of service tax
Original WorksService tax shall be payable on 40% cent of thetotal amount including such gross amount
(a) “original works” means-
(i) all new constructions;1.1.1            
(ii) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable;
(iii)erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise;
In case of works contract, not covered under sub-clause (A), including works contract entered into for,—Service tax shall be payable on 70% of the total amount charged for the works contract
(i) maintenance or repair or reconditioning or restoration or servicing of any goods; or
(ii)maintenance or repair or completion and finishing services such as glazing or plastering or floor and wall tiling or installation of electrical fittings of immovable property, service tax shall be payable on seventy per cent of the total amount charged for the works contract

  • Exemptions available

  1. General Exemption
  • 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.

  1. Negative List / Exemptions:

B1.  Following services have been excluded from levy of tax under negative List:

  • Services provided by a commission agent for sale or purchase of agricultural produce;

B2.  Following exemptions are available vide Notification no. 25/2012-ST, to a commission agent or a job worker:

  • mutual fund agent to a mutual fund or asset management company
  • distributor to a mutual fund or asset management company
  • a selling or marketing agent of lottery tickets to a distributer or a selling agent
  • a selling agent or a distributer of SIM cards or recharge coupon vouchers
  • a business facilitator or a business correspondent to a banking company or an insurance company in a rural area
  • services of carrying out an intermediate production process as job work in relation to –

(a)     Agriculture, printing or textile processing;

(b)      Cut and polished diamonds and gemstones; or plain and studded jewellery of gold and other precious metals, falling under Chapter 71 of the Central Excise Tariff Act,1985 (5 of 1986);

(c)       Any goods on which appropriate duty is payable by the principal manufacturer; or

(d)      processes of electroplating, zinc plating, anodizing, heat treatment, powder coating, painting including spray painting or auto black, during the course of manufacture of parts of cycles or sewing machines upto an aggregate value of taxable service of the specified processes of one hundred and fifty lakh rupees in a financial year subject to the condition that such aggregate value had not exceeded one hundred and fifty lakh rupees during the preceding financial year;

  • Sub-contractor providing services by way of works contract to another contractor providing works contract services which are exempt
  • 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.

  • Related Circulars and Notification

  • Para 2.1 of Circular no. 59/8/2003, dated 20-6-2003
  • CBEC Circular no. 66/15/2003-ST, dated 5-11-2003
  • Circular no. 62/11/2003-ST, dated 21-8-2003
  • Paras 18.1 to 18.3 of Circular no. 80/10/2004-S.T., dated 17-9-2004
  • Circular F.No. 341/13/2005-TRU, dated 12-5-2005
  • Para 24 of Circular F. No. B1/6/2005-TRU, dated 27-7-2005(extract)
  • Circular F. No. B1/6/2005-TRU, dated 27-7-2005(extracts)-
  • Ministry’s letter F. No. 137/ 57/2006-CX-4, dated 18-5-2007
  • Paras 4 & 5 of Circular/letter D.O.F. no. 334/1/2008-TRU, dated 29-2-2008
  • Circular letter dy. No. 324/comm (ST)/2008, dated 1-12-2008(issued from file C. No.IV/16/06/2009-STU)/trade notice no. 15/2009, dated 13-3-2009, Madurai Commissionerate
  • Circular no. 96/7/2007-ST, dated 23-8-2007, as amended by Circular no. 98/1/2008-ST, dated 04.01.2008
  • Board’s letter F.No.137/92/2008-CX.4, dated 29-7-2008 (issued from file C.No.IV/16/06/2008-STU pf-II)/trade notice no. 1/2009, dated 7-1-2009, Madurai Commissionerate
  • Board’s letter F.No.332/41/2008-TRU, dated 19-12-2008 (issued from file c.no.iv/16/06/2009-stu)/trade notice no. 16/2009, dated 13-3-2009, Madurai Commissionerate
  • Relevant extracts of ministry’s Circular letter D.O.F. No. 334/13/2009-TRU, dated 6-7-2009
  • Circular no. 115/09/2009-ST, dated 31-7-2009
  • Circular no. 121/3/2010-ST, dated 26-4-2010
  • Circular no. 120(a)/2/2010-ST, dated 16-4-2010

 

  • Para 2.1 of Circular No. 59/8/2003, dated 20-6-2003

2.1-1   Call centres and medical transcription centres – Business auxiliary services provided by call centres (i.e., commercial concern which provides assistance, help or information, through telephone, on behalf of another person) and medical transcription centres (i.e., commercial concern which transcribes medical history, treatment, medical observations and the like) have been fully exempted from levy of service tax w.e.f. 1st July, 2003, vide Notification No.8/2003-Service Tax, dated 20th June, 2003.

2.1-2   Commission agent – As per the definition of business auxiliary services, services as commission agent are considered business auxiliary services. However services of commission agents have been exempted from service tax w.e.f. 1st July, 2003 vide NotificationNo.13/2003-Service Tax, dated 20th June, 2003. Commission agent has been defined in the Notification, as a person who causes sale or purchase of goods, on behalf of another person for a consideration, which is based on the quantum of such sale or purchase. It may be noticed that the exemption under this Notification is for a commission agent while the services of a consignment agent remain taxable under the category of Clearing and Forwarding services. It may be appreciated that the nature of service provided by a Consignment agent is different than that provided by a commission agent. A consignment agent’s job is to receive the goods from the principal and dispatch them on the directions of the principal, whereas a commission agent’s job is to cause sale/purchase on behalf of another person. Thus, the essential difference is that a commission agent sells or purchases on behalf of the principal while consignment agent receives and dispatches the goods on behalf of a principal. It is possible that a person may be a consignment agent as well as a commission agent. Such a person would already be covered in the category of Clearing and Forwarding agent and would be liable to pay service tax in that category. In other words, the present exemption is available only to such commission agent who is not a consignment agent.

2.1-3 Clarification on doubts – Certain doubts have been raised in case of business auxiliary services. In this regard the following is clarified,—

  • While it is not possible to give an exhaustive list of business auxiliary services, the following are illustrations of services that are covered under this category evaluation of prospective customers, processing of purchase orders, customer management, information and tracking of delivery schedules, accounting and processing of transactions, operational assistance for marketing, formulation of customer service and pricing policies, managing distribution and logistics. The services provided in relation to getting a customer, verification of prospective customer, processing of purchase order etc. would also be covered under service tax, as the law specifically provides for inclusion of such services as business auxiliary support services.
  • As regards the question whether insurance agents, C&F agents working on commission basis fall under the definition of business auxiliary service, it is clarified that they do not, as they are specifically covered within the definition of other specified taxable services, namely the Insurance Service and C&F Service respectively. Under section 65A of Finance Act, 1994, it has also been provided that in case of overlap, a service would be classified under the head, (a) which provides most specific description, (b) in case of a composite service having combination of different taxable services, the service which give them their essential character and (c) in case the test of (a) and (b) does not resolve, the service which comes earlier in the clauses of section 65, e. the service that was subjected to service tax earlier. Since Insurance Services and C&F Services are more specific description and were also subjected to service tax prior to imposition of tax on business auxiliary service, the insurance agents, C&F agents working on commission basis would fall under those respective categories. From this, it follows that a particular service can be taxed only under one head of service.
  • As per the definition of business auxiliary services, information technology service is outside the purview of business auxiliary service. In the explanation appended to the definition in the Act itself, it has been clarified that information technology service means any service in relation to designing, developing or maintaining of computer software or computerized data processing or system networking or any other service primarily in relation to operation of computer systems. In this regard, it is clarified that only if the output service provided by a service provider is in the nature of the above operations, such exclusion would operate. The mere fact that a personal computer or a laptop has been used for providing the service does not, ipso facto, make the service an information technology service. Similarly, the fact that any of the IT services mentioned in the Explanation has been used by the service provider as an input service does not automatically make the output service an IT service. Therefore, in such cases, individual service has to be examined with reference to the Explanation provided to the definition of business auxiliary service and only such output services which qualify to be IT services in terms of the said Explanation shall remain excluded from taxable service under the heading business auxiliary service.
  • CBEC Circular No. 66/15/2003-ST, dated 5-11-2003

        I am directed to say that some doubts have been raised regarding application of service tax on the activity of Mutual Fund Distribution as to whether—

(1)   The commission received by distributors on mutual fund distribution is liable to Service Tax under the category of Business Auxiliary Services?

(2)   The services provided is exempt from service tax in terms of Notification No. 13/2003, dated 20-6-2003?

        In this connection, it is clarified that the services provided as referred above are primarily in nature of the services of commission agent in relation to clauses (ii) and (iv) of the category of services mentioned in the definition of Business Auxiliary Services and hence should be leviable to service tax under this category. This activity does not get covered under exemption Notification No. 13/2003-ST, dated 20-6-2003 as this is not in relation to sale or purchase of goods. The exemption provided under Notification No. 13/2003-ST is applicable only for commission agents dealing in goods.

  • Circular No. 62/11/2003-ST, DATED 21-8-2003

        The definition of Business Auxiliary Service in the law excludes the Information Technology(IT) services. As per the definition IT service means any service in relation to designing, developing or maintaining of computer software or computerized data processing or system networking or any other service primarily in relation to operation of computer systems. It was clarified in Circular No. 59/8/2003, dated 20-6-2003 that only if the output service provided by a service provider is in the nature of the above operations, such exclusion would operate. The mere fact that a personal computer or a laptop has been used for providing the service does not, ipsofacto,make the service an Information Technology service. Similarly, the fact that any of the IT services has been used by the service provider as an input service does not automatically make the output service an IT service.

        A doubt has been raised that the clarification in the said Circular dated 20-6-2003, is at odds with the letter F. No. 334/1/2003-Tru, dated 28-2-2003 which states, “However computer enabled services, namely, data processing, networking, back office processing, computer facility management shall not be subjected to Service Tax”. It is claimed that back office processing may include accounts outsourcing or payroll-processing activities, etc., and such service may not be primarily in relation to computer system.

        It is clarified that there is no contradiction between the clarifications dated 28-2-2003 and dated20-6-2003. The scope of IT services is explained in the definition of “Business Auxiliary Service” in the Act itself as any service in relation to designing, developing or maintaining of computer software or computerized data processing or system networking or any other service primarily in relation to operation of computer systems. The last words “primarily in relation to operation of computer systems” make the intention abundantly clear. The words “back office processing” used in the clarification dated 28-2-2003 have to be read in conjunction with the other terms used therein, viz., data processing networking, computer facility management. Thus, any service of back office processing primarily in relation to operation of computer system will be covered as IT services and not taxable. Payroll-processing, accounts, management, etc., even by using computer programmes, cannot be termed as activities primarily in relation to computer systems. The use of computer in these services is secondary and the primary activity is that of business-related work. Thus, these services will be taxable as Business Auxiliary Services. This is exactly the position that has been clarified in the Circular dated 20-6-2003.

  • Paras 18.1 to 18.3 of Circular no. 80/10/2004-S.T., dated 17-9-2004

18.1 The scope of an existing taxable service (i.e. Business Auxiliary Service) has been expanded to include activities relating to procurement of inputs, production of goods (not amounting to manufacture) or provision of services on behalf of a client. The tax is leviable only when the service provider is a commercial concern.

18.2 The pre-budget definition of Business Auxiliary Service covered services, which relate to the sale and marketing side of a business. However, the auxiliary services which relate to procurements, inventory, production (or provision in case of services) were not covered. The present definition intends to bring all business auxiliary services relating to procurement, inventory and production under service tax. Thus, the procurements of input, capital goods or input services as defined in the CENVAT Credit Rules, by a commercial concern for a client i.e. a person producing goods or providing services would be now taxable under this category. Similarly, if a commercial concern produces goods on behalf of the client or provides service on behalf of a client, such activities would come under the scope of this service, unless the activity of service provider amount to manufacture in terms of the central excise law. The aim of all such activities is production of goods or provision of services, the whole or part of which is being carried out by the service provider (i.e. the agent) on behalf of the client. Such activities include procurements, productions or service providing activities done for the client.

18.3 The service tax is, however, being restricted to only those cases where the service provider is a factory governed by the Factories Act, 1948, a company established by or under the Companies Act, 1956 or a corporation or a body corporate established by or under any law, partnership firms (whether or not registered), societies registered under Societies Registration Act, 1860 or under any law and any co-operative society established by or under any law. However, services in relation to agriculture, printing, textile processing and education would remain exempt even if provided by such service providers. (Refer Notification No. 14/2004-S.T.,dated 10-9-2004

  • Circular F.No. 341/13/2005-TRU, dated 12-5-2005

        It has been brought to the notice of the Board that certain field formations have interpreted that service tax is leviable on certain processing activities undertaken by job-workers in relation to manufacture of Gem and Jewellery sector, for or on behalf of the client, even though such activities does amount to ‘manufacture’ under Central Excise Law.

  1. In 2004, service tax was imposed on the activity of ‘production of goods on behalf of the client’ [clause (v) of section 65(19) of Finance Act] under the category of business auxiliary service. However, it was prescribed in the definition of business auxiliary service [section 65(19)of Finance Act] that the activity amounting to ‘manufacture’ within Central Excise Act, 1944is not liable to service tax.
  1. In Finance Act, 2005it is proposed to amend this clause to levy service tax on the activity (not amounting to ‘manufacture’) of ‘production or processing of goods for, or on behalf of, the client’. The proposed change in the Finance Act, 2005 would come into effect only from the date notified by the Central Government after the enactment of the Finance Act, 2005.
  1. Processes outsourced in gem and jewellery sector which amount to ‘manufacture’ within the scope of section 2(f) of the Central Excise Act, 1944would not be liable to service tax. Production of goods on behalf of the client is leviable to service tax under ‘business auxiliary service’ only if such production activity does not amount to manufacture.
  • Para 24 of Circular F. no. b1/6/2005-TRU, dated 27-7-2005(extract)

 

24.1 One of the taxable activities prior to amendment by Finance Act, 2005 under business auxiliary service was ‘production of goods on behalf of the client’. The activities that amount to manufacture within the Central Excise Act were not covered within the scope of the taxable service. Amendments have been made to define this taxable activity as ‘production or processing of goods for, or on behalf of the client’. The condition that only such activities would be liable to service tax which do not amount to manufacture under Central Excise Law would, however, continue.

24.2 A point was raised whether ‘production of goods on behalf of the client’ covers situations where the service provider undertakes job work for the client. In view of the amendment, production or processing (not amounting to manufacture) done either for the client or on behalf of the client would be liable to service tax.

24.3 Another taxable activity covered under business auxiliary service is ‘procurements of goods or services, which are inputs for the client’. In this case, the term ‘inputs’ had not been specifically defined in the Finance Act, 1994. The scope of the term input has been clarified by defining input [under Explanation in section 65(19) of the Finance Act, 1994] for the purpose of this taxable activity as ‘inputs’ means all goods or services intended for use by the client. Thus, services rendered for procurement of any goods or services intended for use by the client would be taxable. This definition of input is different from the definition of input under Cenvat Credit Rules.

24.4 Services provided by commission agents are specifically included within the scope of business auxiliary service. However, the term ‘commission agent’ was not defined in the Finance Act, 1994. Definition of ‘commission agents’ has been provided in Explanation (a) in section 65(19) of the Finance Act.

  • Circular F. No. B1/6/2005-TRU, dated 27-7-2005 (Extracts)

32.1 Notification No. 21/2005-Service Tax, dated 7-6-2005 exempts the taxable services of “production or processing of goods for, or on behalf, of a client” referred to in sub-clause (v) of clause (19) of section 65 of the Finance Act, 1994, provided by a commercial concern, in the course of manufacture of cut and polished diamonds and gem stones or plain and studded jewellery of gold and other precious metals. However, other taxable services, such as, supply of manpower, banking and other financial services, other business auxiliary services, provided in the course of manufacture of cut and polished diamonds and gem stones or plain and studded jewellery of gold and other precious metals, are leviable to service tax and no exemption for these services is provided. All taxable services received from abroad by an Indian recipient in relation to these goods are held to be liable to be taxed under “Reverse Charge” norms.

  • Ministry’s Letter F. No. 137/ 57/2006-CX-4, Dated 18-5-2007

        Please refer to your letters F. No. 171/DGCEI/ST/INT/57/2006, dated 16-11-2006, F. No.171/DGCEI/MZU/1 and ISD/12(1)/37/5, dated 29-9-2006, F. No. 171/DGCEI/ST/INT/83/2005, dated 11-10-2006, F. No. 171/DGCEI/ST/INT/47/2006, dated 25-11-2006 on the above subject.

The stock exchanges like National Stock Exchanges (NSE)/Bombay Stock Exchanges (BSE)provide electronic platform and other related services to facilitate and carry on trading shares, stocks, debentures, bonds and commodity etc. and to initiate, facilitate, promote, assist, undertake manage all activities in relation to trading in securities, other instruments and commodities. The clearing houses associated with these exchanges, i.e. National Securities Clearing Corporation Limited (NSCCL) and M/s Bank of India Shareholding (BOISL) provide service of clearing and settlement of stocks, which includes validating the transactions; keeping account of buying and selling of stock; maintaining payment details against buying and selling; debiting and crediting the customer’s accounts and providing guarantees to the parties (i.e. brokers or investors) settlement of transaction. In case of trade in Government securities, treasury bill, guaranteed securities, bonds, units, deposits, certificates, notes, warrants and other securities of all kind on Negotiated Dealing System (NDS), the electronic platform of RBI, clearing and settlement is done by Clearing Corporation of India Ltd. (CCIL). Similarly, National Commodities & Derivatives Exchanges (NCDEX) and Multi Commodity Exchanges of India (MCX) provide electronic platform and other related services for trading in commodities. Further, commodity exchanges are also providing services of clearing and settlement of trade executed through them.

The Board has examined the issue of leviability of service tax on services provided by the Stock and Commodity Exchanges and Corresponding Clearing and Settlement Organisations, under the category of ‘provision and transfer of information and data processing (under Banking and other Financial Services)’, ‘Business auxiliary services on-line information and data base access or retrieval services’ and ‘club and association service’.

The Board is of the view that the activities of the exchanges and their clearing houses as mentioned above cannot be simply, called the ‘online information and database access retrieval service’ or ‘provision and transfer of information and data processing’. While it is true that the Exchanges/clearing houses do process, exchanges/transfer and provide online data during the course of their business, the same is (i) only incidental to ensure transaction of stocks/commodities and their settlement, and is not the principal service provided by the Exchanges and their clearing houses (ii) no separate charges are collected for information and data processing or access/retrieval by the Exchanges/clearing houses during the course of such trading. The transaction charges collected by the Exchanges are based on the quantum (in money value) of transaction in stock or commodity, as the case may be, and not on the volume of data inter changed/accessed retrieved. Similarly, these services do not fall under the business auxiliary service, as these are not performed on behalf of any other person. These services would also not fall under the category of services provided by ‘clubs and associations’ as the Exchanges and clearing houses are corporate bodies which provide service to investor through a registered member as against to its own members. Thus, though the above stated activities of the Exchanges/clearing houses are in the nature of ‘services’, they do not fall under the category of any of the existing taxable services.

However, if service of ‘online information’ is provided by exchange on payment basis to, say, market reporting agency or any other person (i.e. television channels), the same is liable to service tax.

The pending issue may be decided on the aforesaid basis.

  • Paras 4 & 5 of Circular/letter D.O.F. no. 334/1/2008-TRU, dated 29-2-2008

4.1.7 Following consequential amendments in other taxable services are also being made :

        At present, ‘Information technology service’ is specifically excluded from the scope of business auxiliary service [section 65(105)(zzb)]. Consequent on the proposed IT software service, information technology services get covered comprehensively for the purpose of levy of service tax and, therefore, specific exclusion of ‘Information technology service’ under business auxiliary service is being deleted.

5.4      Business Auxiliary Service :

5.4.1   Services provided in relation to promotion or marketing of service provided by the client is leviable to service tax under business auxiliary service. Organization and selling of lotteries are globally treated as supply of service. Lotteries (Regulation) Act, 1998 enables State Governments to organize, conduct or promote lotteries. Lottery tickets are printed by the State Governments and are sold through agents or distributors. Tickets are delivered by the State Government to the distributors at a discounted price as compared to the face value of the tickets. Services provided by the distributors or agents in relation to promotion or marketing of lottery tickets are leviable to service tax under the existing business auxiliary service.

5.4.2   Lotteries fall under the category of games of chance. Games of chance are known under various names like lottery, lotto, bingo etc. and are also conducted through internet or other electronic networks.

5.4.3   To clarify as removal of doubts, an explanation is added under business auxiliary service stating that services provided in relation to promotion or marketing of games of chance organized, conducted or promoted by the client are covered under the existing definition of business auxiliary service. Amendment is only for removal of doubts and field formations are, therefore, requested to ensure that service tax is collected on such services.

  • Circular letter dy. no. 324/comm. (ST)/2008, dated 1-12-2008(issued from File c. no. iv/16/06/2009-stu)/trade notice no. 15/2009, dated 13-3-2009, Madurai Commissionerate

Please refer to your Letters V(ST)/15-96/Commissioner/BIL/2008/Adj, dated 10-10-2008 and others on the subject mentioned above.

The matter regarding levy of service tax under the head ‘Business Auxiliary Service’ on the ‘Commission’ received by the Directors of the company has been examined. The Board is of the view that some companies make payment to their officials, such as Managing Directors/Directors terming the same as ‘Commission’. This payment may be over and above the salary and other remunerations. Such commissions may be either performance linked or linked to the financial results of the company, but the fact is that it is nothing but remuneration paid to an employee by the employer. The relationship between an employer and the employer is distinct from the relationship between a service receiver and service provider. Thus action taken by an employee for the benefit of the employer cannot be in the nature of service. Therefore, so long as the activities performed are duties within the framework of the terms of employment, the amount paid by an employer to an employee even if it is termed as commission, it would not be treated as ‘Commission’ mentioned under the definition of business auxiliary service and service tax would not be leviable on such amount.

  • Circular No. 96/7/2007-ST, dated 23-8-2007, as amended by Circular No. 98/1/2008-ST, dated 4-1-2008
Reference Code

 

Issue Clarification

 

(1) (2) (3)
048.01/23.08.07 Whether commission received by distributors for distribution of mutual fund units is liable to Service Tax under business auxiliary service?

 

Distributors receive commission from mutual fund for providing services relating to purchase and sale of Mutual fund units. Services provided by such distributors are in the nature of commission agent and are, thus, liable to service tax under business auxiliary service [section 65(105)(zzb)].
  • Board’s letter F.No.137/92/2008-CX.4, dated 29-7-2008 (Issued from File C.No. IV/16/06/2008-STU PF-II)/trade notice no. 1/2009, dated 7-1-2009, Madurai Commissionerate

It is clarified that contract hatching of eggs would not fall in any of the taxable services, namely, business auxiliary service or business support service.

This may be brought to the notice of all constituent members of your trade associations.

  • Board’s letter F.No.332/41/2008-TRU, dated 19-12-2008 (Issued from File C.No. IV/16/06/2009-STU)/trade notice no. 16/2009, dated 13-3-2009, Madurai Commissionerate

        The ship broker ensures that the conditions of the contracts are adhered to. They also follow up the movement of goods and freight payment till the cargo reaches its destination. Hence, the activities undertaken by ship brokers are nothing but provision of services on behalf of client for a consideration akin to that of a commission agent. As per section 65(19)(vii)(a) of the Finance Act, 1994, “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’.

        The ship broker is acting on behalf of shipping lines/ship owner and causes provisions of services, for a consideration. The activities of ship broker are akin to a commission agent. Shipbrokers not only provide services on behalf of shipping line/ship owner and charterer but also deal with the goods i.e., cargo. This is clearly evident from the fact that it monitors the cargo movement till it reaches the destination. Ship broker also ensures that freight is paid after cargo reaches the destination. Hence the activities undertaken by ship broker are of commission agent and leviable to service tax under Business Auxiliary Service (BAS) of section 65(105)(zzb) of the Finance Act, 1994.

        In view of the above, it is clarified that the service rendered by ship broker is leviable to service tax under Business Auxiliary Service.

        This may be brought to the notice of all constituent members of your trade associations.

  • Relevant extracts of ministry’s Circular letter D.O.F. no. 334/13/2009-TRU, dated 6-7-2009

3.1            Modification in Business Auxiliary Service (BAS) [section 65(19)]: It may be recalled that production or processing of goods for or on behalf of a client falls within the purview of this service. However, if any such activity amounts to manufacture within the meaning of section 2(f)of the Central Excise Act, the same is excluded from its purview. This exclusion has been modified to state that it would apply only if the activity results in manufacture of ‘excisable goods’. Both the words/phrases i.e. ‘manufacture’ and ‘excisable goods’ would have the same meaning as defined under the Central Excise Act. The impact of this change would be that even if a process of manufacture is undertaken for the client, but the resultant product does not fall under the category of excisable goods, such as alcoholic beverages, the service tax would be attracted. Certain other goods which would also fall under BAS on account of the proposed change would be kept outside the tax net by way of exemption Notification, to be issued at the appropriate time.

  • Circular No. 115/09/2009-ST, dated 31-7-2009
  1. Below mentioned issues have been referred to the Board seeking clarifications,—

(i)    applicability of service tax under ‘Business Auxiliary Service’ on commission paid to Managing Director/Directors (Whole time, or Independent) by the company,

(ii)   applicability of service tax on Independent Directors who are part of the Board of Directors under ‘Management Consultant Service’.

  1. Both the matters have been examined by the Board and the clarifications are as under,—

(i) Some Companies make payments to Managing Director/Directors (Whole-time or Independent), terming the same as ‘Commissions’. The said amount paid by a company to their Managing Director/Directors (Whole-time or Independent) even if termed as commission, is not the ‘commission’ that is within the scope of business auxiliary service and hence service tax would not be leviable on such amount.

(ii) The Managing Director/Directors (Whole-time or Independent) being part of Board of Directors perform management function and they do not perform consultancy or advisory function. The definition of management consultant service makes it clear that what is envisaged from a consultant is advisory service and not the actual performance of the management function. The payments made by Companies, to Directors cannot be termed as payments for providing management consultancy service. Therefore, it is clarified that the amount paid to Directors (Whole-time or Independent) is not chargeable to service tax under the category ‘Management Consultancy Service’. However, in case such directors provide any advice or consultancy to the company, for which they are being compensated separately, such service would become chargeable to service tax.

  1. In view of the above, it is clarified that remunerations paid to Managing Director/Directors of companies whether whole-time or independent when being compensated for their performance as Managing Director/Directors would not be liable to service tax.
  • Circular No. 121/3/2010-ST, dated 26-4-2010

        Generally marine containers are temporarily brought into a customs territory and have to be re-exported within a specified period. Normally, a Full Container Load is taken out of the port and the activity of stuffing or de-stuffing takes place at the premises of the exporter/importer. The shipping companies/steamer agent provide a pre-determined period within which the container (that has gone out of the port) is to be returned. This is called as ‘pre-holding period’ and the duration of the same is mentioned in the contract. In case there is any delay on the part of the customer in returning the container, the charges known as ‘detention charges’ are collected over and above the contracted amount by the shipping line.

  1. Representations have been received in the Board that service tax has been demanded on such ‘detention charges’ under the ‘Business Support Service (BSS)’ or ‘Business Auxiliary Service(BAS)’.
  1. The issue has been examined. To retain the container beyond the pre-holding period is neither a service provided on behalf of the client (Business Auxiliary Service) nor is it an infrastructural support in the business of either the shipping lines or the customer (Business Support Service).Such charges can at best be called as ‘penal rent’ for retaining the containers beyond the pre-determined period. Therefore, the amount collected as ‘detention charges’ is not chargeable to service tax.
  1. The Board desires that pending cases, if any, on this issue may be decided in line with the above clarification.
  • Circular No. 120(a)/2/2010-ST, dated 16-4-2010

        In terms of section 101A (Part IVA) of the Insurance Act, 1938, every insurer dealing in insurance business is required to re-insure a specified percentage of sum assured with another insurance company.

  1. The insurance company pays premium to the reinsuring company for this service. However, a part of such premium is deducted and kept by the insurance company for meeting the administrative expenditure. In other words, the insurance company and the re-insurance company jointly bear the expenses for running the insurance/reinsurance business. This shared expense is commonly known as ‘commission’ though strictly it is not in the nature of a commission. It maybe pertinent to mention that the customer/beneficiary deals only with the insurance company and may not even be aware of the role of re-insurer and the backroom operations between the insurance company and the reinsurer.
  1. As per the provision of the Finance Act, 1994, insurance as well as reinsurance are subject to service tax. The Board has received representations that notices have been issued demanding service tax on the amounts deducted by the insurance company (in other words paid by there insurance company) on the ground that it is the consideration for the insurance company providing business auxiliary service (BAS) to the re-insuring company. The notices alleged that the insurance companies are promoting the business of re-insurers thereby providing them the BAS.
  1. The issue has been examined. As explained in para 2 above, the arrangement between the insurance company and the reinsurer is only sharing of expenses and there is no service provided by the insurance company to the re-insurer for a consideration. Since the policy holder may not even be aware of the operations of the re-insurer, it cannot be said that the payment made by there-insurer to the insurance company is for its business promotion or a service on behalf of there-insuring company (i.e., Business Auxiliary Service). In fact, it is the reinsurer which provides insurance service to the insurance company. As both the insurance company and reinsurer pay service tax on the entire amount of premium charged by them, the question of charging service tax under any other taxable service does not arise.
  1. The Board desires that all pending cases on this subject may be decided keeping in view the above clarification.

 

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