Scientific & Technical Consultancy Services

  • Understanding of the service

Companies across globe are investing a lot of their funds in research and development of new products and process. For the said purpose services of scientist or a technocrat, or any science or technology institution or organisation are taken. Any service taken from such scientist or a technocrat, or any science or technology institution or organisation in the form of any advise, consultancy or scientific or technical assistance is taxable under the present head of taxable service. Basis the definition, it can be said that only the advise, consultancy and scientific or technical assistance is taxable and not actual execution of work.

  • 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
00440125 00440126

  • Taxability as settled by precedents / Circulars / Trade notices

Activity Whether falls within the scope of present service Reference
Mere carrying out the chemical analysis and furnishing test results for pesticides No Rallis India Ltd Vs. CCE 2006 (4) STR 289 (Tri Bang)
Service such as complete technical information, methods, procedure, data and techniques and also training of employees about the project relating to research and development activities with regard to automotive tyres Yes CCE, Chennai v M.R.F. Ltd. 2005 (179) ELT 472 (Tri Chennai)
The technical know-how and quality expertise were transferred before collaborating the unit in an agreement Yes CCE, Calicut/Cochin  v Rubco Sales International Pvt. Ltd. & Sun Metal & Alloys (P) Ltd. 2006 (1) STR 291
Appellant received technical assistance from the manufacturer of the goods for manufacturing the products in India No MitaHarig (India) Ltd. v CCE, Ghaziabad 2006 (3) STR 660 (Tri Del)
Mere testing will not attract service tax. However, in case testing is an integral part of the consultancy, then such activity is part and parcel of the taxable service Yes Ministry’s Letter F. No. B-II/I/2000-TRU, dated 9-7-2001 – Annexure I
scientific or technical consultancy service is rendered whether by public funded institutions or by private agencies Yes Ministry’s Letter F. No. B-II/I/2000-TRU, dated 9-7-2001 – Annexure I
Whether services rendered by doctors, medical colleges, nursing homes, hospitals, diagnostic and pathological

labs, etc. would come under the purview of the proposed levy.

 

No Ministry’s Letter F. No. B-II/I/2000-TRU, dated 9-7-2001 – Annexure I

  • 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 Scientific and Technical Consultancy 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 Scientific and Technical Consultancy Services is to be determined in terms of provision of Section 67 read with the prescribed Rules.

  • Abatement

No abatement has been granted to any person liable to pay service tax under the Section.

  • 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. Specific Exemptions:

No Specific Exemption had been granted by the government in case of Scientific And Technical Consultancy Services.

  • 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 recipient shall determine place of provision of such services.  Thus, if the recipient is within taxable territory, place of provision shall be within taxable territory and taxable, else, non taxable.

  • Provisions relating to reverse charge

These 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.

  • Related Circulars and Notification

  • Ministry’s letter F. No. B-II/I/2000-TRU, dated 9-7-2001
  • Section 65(60) defines “scientific and technical consultancy” as any advice, consultancy, or scientific or technical assistance, rendered in any manner, by a scientist or a technocrat, or any science or technology institution or organisation, to a client, in one or more discipline of science or technology. The taxable service has been defined in clause (72)(za) of section 65 as “any service provided, to a client, by a scientist or a technocrat, or any science and technology institution or organisation, in relation to scientific or technical consultancy”.
  • The taxable service should be understood in the context of its commonly understood meaning and scope. For instance, it would cover consultation, advice or technical assistance provided by a scientist or a technocrat or a science or technology institution on any issue relating to any branch of science and technology. Such consultation may be in the nature of an expert opinion/advice in regard to scientific or technical feasibility or any other scientific or technical aspect of a project, process or design, recommending an apt technology, suggestion for improvement in existing technology or process, providing consultation on any technical problem or about new technology, etc. Some of the specific issues raised and clarifications thereon are given below.
  • Points for clarification:
 Point raised for clarification             Clarification
Whether services rendered by doctors, medical colleges, nursing homes, hospitals, diagnostic and pathological labs, etc. would come under the purview of the proposed levy. In common parlance, these categories of service providers are not known as scientists or technocrats or science or technology institutions or organisations. They will not be covered under service tax.

 

Whether public funded research institutions like CSIR, ICAR,DRDO, IITs and IISC, Regional Engineering Colleges etc., which are exempt from payment of income-tax are covered under the service tax. Yes. Service tax is liable to be paid when any scientific or technical consultancy service is rendered whether by public funded institutions or by private agencies.

 

Whether testing services will be covered under the proposed levy? Mere testing will not attract service tax. However, in case testing is an integral part of the consultancy, then such activity is part and parcel of the taxable service and no abatement of any kind admissible.
Many public funded research institutions receive grants or aids from the Government for conducting research/project work. Whether such activities would be covered under the

levy?

In the facts of this case, no service is rendered to any one. Hence the question of payment of service tax does not arise. However, if they render service to anyone on payment basis, service tax will be payable on such services.

 

Whether the service tax will be leviable on consultancy provided to Government departments, public sector undertakings? If scientific or technical consultancy is provided to a Government department for which consultation fees are received, then service tax would be applicable.

 

 

Read More 

Print Friendly
By | 2017-04-06T10:48:57+00:00 September 19th, 2016|Service Wise Implications|

Leave A Comment