• To be taxable an activity should be carried out by a person for another for a ‘consideration’

• Activity carried out without any consideration like donations, gifts or free charities are therefore outside the ambit of service. For example grants given for a research where the researcher is under no obligation to carry out a particular research would not be a consideration for such research.

• An act by a charity for consideration would be a service and taxable unless otherwise exempted. Conditions in a grant stipulating merely proper usage of funds and furnishing of account also will not result in making it a provision of service.

• Donations to a charitable organization are not consideration unless charity is obligated to provide something in return e.g. display or advertise the name of the donor in a specified manner or such that it gives a business advantage to the donor.

Further clarity is also needed as to what is the meaning of monetary consideration and non-monetaryconsiderations. Monetary consideration means any consideration received in the form of money. ‘Money’ includes not only cash but also cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveler’scheque, money order, postal or electronic remittance or any such similar instrument when used as consideration to settle an obligation.

Non-monetary consideration could be in the form of following:

• Supply of goods and services in return for provision of service

• Refraining or forbearing to do an act in return for provision of service

• Tolerating an act or a situation in return for provision of a service

• Doing or agreeing to do an act in return for provision of service

The non-monetary consideration also needs to be valued for determining the tax payable on the taxable service since service tax is levied on the value of consideration received which includes both monetary consideration and money value of non-monetary consideration. The value of non-monetary consideration is determined as per section 67 of the Act and the Service Tax (Determination of Value) Rules 2006, which is equivalent money value of such consideration and if not ascertainable, then as follows:-

• On the basis of gross amount charged for similar service provided to other person in the ordinary course of trade;

• Where value cannot be so determined, the equivalent money value of such consideration, not less than the cost of provision of service.

The consideration for a service may be provided by a person other than the person receiving the benefit of service as long as there is a link between the provision of service and the consideration. For example, holding company may pay for works contract service or architect services that are provided to its associated companies. Thus in order to correctly arrive at the fact that as to whether a particular service comes under the ambit of the service tax or otherwise, a clarity is must as far as the term consideration is concerned .

Speech is silver, silence is Golden. There are times when silence has more meaning and speaking proves to be a blunder. Spelling out “bundled service” may prove to be the biggest blunder in the Finance Bill, 2012. The finance bill proposes a new insertion vide section 66F: ‘where a service is capable of differential treatment for any purpose based on its description, the most specific description shall be preferred over a more general description’. ‘Bundled service’ means a bundle of provision of various services wherein an element of provision of one service is combined with an element or elements of provision of any other service or services. An example of ‘bundled service’ would be air transport services provided by airlines wherein an element of transportation of passenger by air is combined with an element of provision of catering service on board. Each service involves differential treatment as a manner of determination of value of two services for the purpose of charging service tax is different. Two rules have been prescribed for determining the taxability of such services in clause (3) of section 66F of the Act. These rules, which are explained below, are subject to the provisions of the rule contained in sub section (2) of section 66F, viz a specific description will be preferred over a general description. The blunder has arisen due to this new concept of “naturally bundles” and not so naturally bundled services, giving a scope of discretion to the assessing officer and thus inviting disputes and litigations. As per these rules, the Services which are naturally bundled in the ordinary course of business are defined as“ If various elements of a bundled service are naturally bundled in the ordinary course of business, it shall be treated as provision of a single service which gives such bundle its essential character”, For example, a 5-star hotel provides a 4-D/3-N package with the facility breakfast. This is a natural bundling of services in the ordinary course of business. The service of hotel accommodation gives the bundle the essential character and would, therefore, be treated as service of providing hotel accommodation.

As regards the Services which are not naturally bundled in the ordinary course of business the rule says that ‘If various elements of a bundled service are not naturally bundled in the ordinary course of business, it shall be treated as provision of a service which attracts the highest amount of service tax.’ For example, a house is given on rent one floor of which is to be used as residence and the other floor is given for the purpose of commercial activity. Such renting for two different purposes is not naturally bundled in the ordinary course of business. Therefore, if a single rent deed is executed it will be treated as a service comprising entirely of such service which attracts highest liability of service tax. In this case renting for use as residence is in the proposed negative list service while renting for non-residence use is chargeable to tax. Since the latter category attracts highest liability of service tax amongst the two services bundled together, the entire bundle would be treated as renting of commercial property.

Significance of the condition that the rule relating to ‘bundled service’ are subject to the provisions of sub-section (2) of section 66F which says “where a service is capable of differential treatment for any purpose based on its description, the most specific description shall be preferred over a more general description” This rule predominates over the rule laid down in sub-section (3) relating to ‘bundled services’. In other words, if a bundled service falls under a service specified by way of a description then such service would be covered by the description so specified.

Whether services are bundled in the ordinary course of business would depend upon the normal or frequent practices followed in the area of business to which services relate. Such normal and frequent practices adopted in a business can be ascertained from several indicators few of which are listed below –

• The perception of the consumer or the service receiver. If large number of service receivers of such bundle of services reasonably expect such services to be provided as a package then such a package could be treated as naturally bundled in the ordinary course of business.

• Majority of service providers in a particular area of business provide similar bundle of services. For example, bundle of catering on board and transport by air is a bundle offered by a majority of airlines.

• The nature of the various services in a bundle of services will also help in determining whether the services are bundled in the ordinary course of business. If the nature of services is such that one of the services is the main service and the other services combined with such service are in the nature of incidental or ancillary services which help in better enjoyment of a main service. For example service of stay in a hotel is often combined with a service or laundering of 3-4 items of clothing free of cost per day. Such service is an ancillary service to the provision of hotel accommodation and the resultant package would be treated as services naturally bundled in the ordinary course of business. Other illustrative indicators, not determinative but indicative of bundling of services in ordinary course of business are -

• There is a single price or the customer pays the same amount, no matter how much of the package they actually receive or use.

• The elements are normally advertised as a package.

• The different elements are not available separately.

• The different elements are integral to one overall supply – if one or more is removed, the nature of the supply would be affected.

The department knows that there is no straight jacket formula which can be laid down to determine whether a service is naturally bundled in the ordinary course of business or otherwise. Each case has to be individually examined in the backdrop of several factors some of which are outlined above. This gives scope of misinterpretation and thus does not rule out ambiguity. On one hand the FM claims that his budget proposals are to end the scope of discretion and thus put an end to the rampant corruption and on the other hand he blunders by paving way to the concept of bundled services.

There is no doubt that industrialisation leads to economic development of a nation. India is not an exception from this rule and the industrial growth seen in the country during the past few decades have resulted in urbanisation and shrinkage of the total land area under agriculture. Even though India is a force to be reckoned in the industrial and service sector in the global arena, majority of its population still lives in the rural area and relies on agriculture for their livelihood. Agriculture have also been the major source of employment in the country with job opportunities at the primary level as well as in the industries having dependence either directly or indirectly on agriculture. The importance of agriculture in international trade also cannot be undermined with India being one of the leading Countries in the world in export of commodities like tea, coffee, spices and tobacco. Exports of agricultural produce or processed food have not only helped the Country in funding the ever increasing fuel import bill but have also positively contributed to the balance of payment position and made our country self-sufficient.

The age old issue in the industry of agriculture have been the exploitation of farmers by traders. It is a well known fact that the farmers do not receive their rightful share for the goods produced by them and end up being at the mercy of traders for timely sale of their highly perishable farm produce. The supply chain in agricultural produce is heavily dominated by the traders, who purchase the goods at very low prices from the farmers and load the same with their profit margins while selling such goods to the end consumers.

To end the dominance of such traders and for regulating the process of marketing of farm produce, Agricultural Produce Marketing Committees or Boards (APMC) were set up by the State Governments. Such committees or boards provide farmers with a common platform for sale of their farm produce and thus ensuring better prices to the farmers as well as to the end consumers. Every farmer wishing to sell their produce through the APMC’s have to enroll themselves as members. Such marketing committees or boards provide a variety of support services for facilitating the marketing of agricultural produce by provision of facilities and amenities like shops, sheds, water, light, electricity, grading facilities etc. They also take measures for prevention of sale or purchase of agricultural produce below the minimum support price.

APMCs charge market fee for issuing licenses to whole sale trader-cum-commission agent, wholesale traders, commission agent, mill / factory / cold storage owners or any other buyers of agricultural produce, for an agricultural year. The amount so collected by the APMC, from the licensees, is used for providing among other things facilities like roads, drinking water, weighing machines, storage places, street lights, etc. in the market area. These services are not provided on one-to-one basis i.e. in consideration or as an obligation to the persons who have tendered the license fee. Some of these services are capable of being used more conspicuously by the licensees but they do not form part of any contractual obligation to any of the licensees. Since such services falling under the category of Business Auxiliary Services (BAS) were essential in promotion of agriculture and were intended to benefit the poor farmers, were exempted from Service Tax vide Notification No.14/2004-S.T. dated 10.09.2004.

As a classic example of lack of co-ordination between the creators of law and executors of such laws, litigations were initiated by the Service Tax department as they held a view that such services provided by the APMCs for a fee known as “market fee” or “mandi shulk” are in the nature of Business Support Service (BSS), and hence the exemption made available for BAS in relation to agriculture vide Notification No.14/2004-S.T. will not be applicable.

Being a very important industry on which survival of its majority population is at stake, the Central Board of Customs and Excise (CBEC) vide Circular No. 157/8/2012-S.T. dated 27.04.2012 clarified that the services provided by APMC out of the ‘market fee’ collected from the licensees, do not fall under the category of BSS. To avoid any further ambiguity in the matter the board held that the service provided by APMC out of the market fee is not in the nature of ‘outsourced service’ as it is not possible to hold that the licensees have outsourced the development and maintenance of agricultural market to the APMC, which could have been otherwise undertaken by them, solely in their business interest. The Circular stated that development and maintenance of agricultural market infrastructure undertaken by APMC in accordance with the statute, is for the benefit of all users, rather than an activity solely in the interest of licensees and hence, APMC cannot be said to be rendering ‘business support service’ to the licensees. The Circular further held that market fee or mandi shulk received by them cannot be in the nature of consideration for such BSS.

The Board also stated that as statutory bodies, APMCs in addition to provision of basic facilities in the market area to facilitate the farmers, purchasers and others, out of the market fee or mandi shulk collected from the licensees, they also provide a host of services to the licensees in relation to the procurement of agricultural produce, which are ‘inputs’ in terms of the definition given in section 65(19) of the Finance Act, 1994 itself. To that extent the meaning of ‘input’ is much wider in scope than the meaning assigned in rule 2(k) of Cenvat Credit Rules, 2004. With this reasoning the Board held that the services provided by the APMC are classifiable as BAS and hence covered by the exemption under Notification 14/2004-S.T. However, not be undone in its pursuit to increase the revenue collection, the Board did not extend the benefit of this notification to any other service provided by the APMCs for a separate charge (other than ‘market fee’) to either the licensees or farmers or any other person, e.g. renting of shops in the market area, etc..

The efforts of the Board although needs appreciation, the circular itself would be a travesty and loose its significance once the Finance Bill 2012 is enacted. The proposed introduction of the concept of negative list in the Service Tax provisions covers all the support services provided by the APMC / Boards like facilitating the marketing of agricultural produce by provision of facilities and amenities like shops, sheds, water, light, electricity, grading facilities etc. This proposed provision would exempt not only the market fees or mandi shulk, but even the license fees, rents etc. collected by APMC. The Board seems to have conveniently forgotten the proposals in the Finance Bill, 2012 while issuing clarifications in the circular.

“Transfer of goods by way of hiring, leasing, licensing is Taxable under the proposed Declared List”

Unique and novel method to impose service tax has resulted into the invention of a new term “Declared list”, as has been proposed in the Finance bill 2012. There are many disputed activities which are now brought under the ambit of service tax by the way of introduction of Declared list. One such activity involves – Transfer of goods by way of hiring, leasing, licensing or any such manner without transfer of right to use such goods. Transfer of right to use goods is a well recognized constitutional and legal concept. Every transfer of goods on lease, license or hiring basis does not result in transfer of right to use goods. ‘Transfer of right of goods’ involves transfer of possession and effective control over such goods. However, transfer of custody along with permission to use or enjoy such goods, per se, does not lead to transfer of possession and effective control.

The test laid down by the Supreme Court in the case of Bharat Sanchar Nigam Limited vs Union of India to determine whether a transaction involves transfer of right to use goods, which has been followed by the Supreme Court and various High Courts, is as follows:

i. There must be goods available for delivery.

ii. There must be a consensus ad idem as to the identity of the goods.

iii. The transferee should have legal right to use the goods – consequently all legal consequences of such use including any permissions or licenses required therefore should be available to the transferee.

iv. For the period during which the transferee has such legal right, it has to be the exclusion to the transferor – this is the necessary concomitant of the plain language of the statute, viz., a ‘transfer of the right to use’ and not merely a license to use the goods;

v. Having transferred, the owner cannot again transfer the same right to others.

Whether a transaction amounts to transfer of right or not cannot be determined with reference to a particular word or clause in the agreement. The agreement has to be read as a whole, to determine the nature of the transaction.

In case of 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, the 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. The service is, therefore covered in the declared list entry. Further activities like Supply of equipment, 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, 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.

Hiring of bank lockers 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. Hiring out of vehicles where it is the responsibility of the owner to abide by all the laws relating to motor vehicles does not involve transfer of right to use goods as effective control and possession is not transferred. Similarly in case of Hiring of audio visual equipment where risk is of the owner does not involve transfer of right to use goods as effective control and possession is not transferred.

Furthermore, activities in relation to delivery of goods on hire purchase or any system of payment by installments are also covered under the ambit of service tax and now are part of the proposed declared services. Delivery of goods on hire purchase or any system of payment by installments taxable is not chargeable to service tax because as per Article 366(29A) of the Constitution of India such delivery of goods is deemed to be a sale of goods. However activities or services provided in relation to such delivery of goods are covered in this declared list entry.

It has been held by Supreme court in the case of Association of Leasing & Financial Service Companies Vs Union, 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. With this new service taxablactivity, the cost of such services is likely to see and upward trend as the burden will be ultimately passed on to the receiver and user of the services.

It is proposed that these rules will take care of both import and export of services. These rules are primarily meant for persons who deal in cross border services. They will also be equally applicable for those who have operations with suppliers or customers in the state of Jammu and Kashmir. Additionally service providers operating within India from multiple locations, without having centralized registration will find them useful in determining the precise taxable jurisdiction applicable to their operations. The rules will be equally relevant for determining services that are wholly consumed within a SEZ to avail the outright exemption. As a precursor for the eventual roll out of a nation-wide GST, the new rules are also expected to provide a possible backdrop to initiate an honest debate in interested circles so as to fathom all the various issues that may arise in the taxation of inter-state services.

The basic philosophy and essence of indirect taxation is that a service should be taxed in the jurisdiction of its consumption. This principle is more or less universally applied. In terms of this principle, exports are not charged to tax, as the consumption is elsewhere, and service receivers pay tax, on their importation into the taxable territory.

However, this determination is not easy. Services could be provided from one location, delivered to a person located at another and yet be actually consumed at a third location or over a larger geographical territory, falling in more than one taxable jurisdiction. For example a person located in Mumbai may buy a ticket on internet from a service provider located outside India for a journey from Delhi to London. On other occasions the exact location of service recipient itself may not be available e.g. services supplied electronically. As a result it is necessary to lay down rules determining the exact place of provision to capture the place of consumption, while ensuring a certain level of harmonization with international practices in order to avoid both the double taxation as well as double non-taxation of services. It is also a common practice to largely tax services provided by business to other business entities, based on the location of the customers and other services from business to consumers based on the location of the service provider. Since the determination in terms of above principle is not easy, or sometimes not practicable, nearest proxies are adopted to provide specificity in the interpretation as well as application of the law. In the case of a service that is ‘directly in relation to immovable property’, the place of provision is where the immovable property (land or building) is located, irrespective of where the provider or receiver is located.

Here the moot question is what is “immovable property”? “Immovable Property” has not been defined in Service Tax law. However, in terms of section 4 of the General Clauses Act, 1897, the definition of immovable provided in sub-section 3 (26) of the General Clauses Act will apply, which states as under: “Immovable Property” shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth.” Another moot question which occurs is what are the criteria to determine if a service is ‘directly in relation to’ immovable property located in taxable territory? Generally, the following criteria will be used to determine if a service is in respect of immovable property located in the taxable territory: i) the service is physically performed or agreed to be performed on a specific immovable property (e.g. maintenance) or property to come into existence (e.g. construction); ii) the direct object of the service is the immovable property in the sense that the service enhances the value of the property, affects the nature of the property, relates to preparing the property for development or redevelopment or the environment within the limits of the property (e.g. engineering, architectural services, surveying and sub-dividing, management services, security services etc); iii) the purpose of the service is: a) the transfer or conveyance of the property or the proposed transfer or conveyance of the property (e.g., real estate services in relation to the actual or proposed acquisition, lease or rental of property, legal services rendered to the owner or beneficiary or potential owner or beneficiary of property as a result of a will or testament); b) the determination of the title to the property.

There must be more than a mere indirect or incidental connection between a service provided in relation to an immovable property, and the underlying immovable property. For example, a legal firm’s general opinion with respect to the capital gains tax liability arising from the sale of a commercial property in India is basically advice on taxation legislation in general even though it relates to the subject of an immovable property. This will not be treated as a service in respect of the immovable property. Thus, the claim that these new laws will be free from ambiguity and litigations seems a farfetched idea. The new rules are no less than a Rubik cube puzzle.

Another important area under exemption is Health care services, however, only services in recognized systems of medicines are exempt. In terms of the Clause (h) of section 2 of the Clinical Establishments Act, 2010, i.e. Allopathy; Yoga; Naturopathy;Ayurveda; Homeopathy; Siddha and Unani are under the ambit of this exemption. Interestingly, health care services are not under the negative list. Thus the government has kept its option open to tax such services in future by just withdrawing the said exemption if need be. One may recollect that in past too they had taxed such services by hospitals. Thus, there might be many health care activities, which are not covered under the prescribed definition and thus may now be taxable.

The activities by a performing artist in folk or classical art forms of music, dance, or theatre are not subjected to service tax. All other activities by an artist in other art forms e.g. magic shows, mimicry, western music or dance, modern theatres, performance of actors in films or television serials would be taxable. Services provided by such an artist as brand ambassador is also taxable. Recently, their was a protest by the film fraternity, however no relief is expected.

One of the important change in this year’s budget is that many charitable activities are now covered under service tax. If a registered charity is doing any activity falling in negative list of services or otherwise exempt, then they are not required to pay service tax on that activity. However for charitable activities such as advancement of any other object of general public utility; he is exempt up to a value of twenty five lakh rupees in a financial year only, if the total value of such services had not exceeded twenty five lakh rupees during the preceding financial year. However, if his activity is not for general public as defined in the notification, he is not eligible for exemption and required to pay service tax on such activities. In other words, majority of charitable organisations and NGOs who are dealing in activities other than public health; advancement of religion; advancement of educational programmes or skill development and preservation of environment including watershed, forests and wildlife will now be taxable if they gross more than 25 lakhs per annum. Exposing some of the health care, Art – cultural and charitable activities to service tax is not a welcome step.

The government lacks a foresight and has been known for its short sightedness. This is the main reason that they are forced to come out with frequent amendments and clarifications. With the negative list already introduced in the Finance Bill 2012, the definitions and existing list of Taxable services under relevant sections will be obsolete and likely to be deleted from the current Finance Act 1994. In other words, there is no need to classify the taxable services and all services apart from those which have been in the scheduled negative list will be taxable, unless and until specifically exempted. Moreover Notification No.4/2012 – Service Tax dated the 17th March 2012 has amended the Point of Taxation Rules 2011 w.e.f. 1st April 2012, inter- alia, amending Rule 7 of the POT rules, which applied to individuals or proprietary firms or partnership firms providing taxable services referred to in sub-clauses (g), (p), (q), (s), (t), (u), (za) and (zzzzm) of clause (105) of section 65 of the Finance Act, 1994. Thus as per the amendment a proviso is added that, where the payment is not made within a period of six months of the date of invoice, the point of taxation shall be determined as if this rule does not exist. In other words, the payment has to be received in six months and appropriate service tax paid accordingly.

These specific services are those provided to any person, by an architect in his professional capacity; by an interior decorator in relation to planning, design or beautification of spaces; by a practising chartered accountant, practising cost accountant, practising company secretary in their professional capacities. It also covers services by a scientist or a technocrat, or any science or technology institution or organisation, in relation to scientific or technical consultancy and services to a business entity, by any other business entity, in relation to advice, consultancy or assistance in any branch of law. Consulting engineer services are also under the ambit of this Rule.

Rule 7 determined the point of taxation in such cases as the date of receipt of payment. The provisions have been amended both in the Point of Taxation Rules 2011 and the Service Tax Rules 1994 such that from 1st April 2012 the payment of tax shall be allowed to be deferred till the receipt of payment upto a value of Rs 50 lakhs of taxable services. The facility has been granted to all individuals and partnership firms, irrespective of the description of service, whose turnover of taxable services is fifty lakh rupees or less in the previous financial year. However, the board received many representations form associations of such service providers, in respect of these specified eight services, requesting clarification on determination of point of taxation in respect of invoices issued on or before 31st March 2012 where the payment has not been received before 1st April 2012.

The board examined the issue and clarified vide 154/5/2012 dated 28.3.12 that for invoices issued on or before 31st March 2012, the point of taxation shall continue to be governed by the Rule 7 as it stands till the said date. Thus in respect of invoices issued on or before 31st March 2012 the point of taxation shall be the date of payment. Now one wonders that once the Finance bill is enacted and the section 65(105) ceases to be effective, the ministry once again will have to suitably amend the said rules in order to implement them in their true spirit. Such frequent changes and amendments could have been avoided with a better foresight. A major corrective sight surgery may be required and this Short sightedness needs to be rectified.

Secondly one of the most important term used is “Consideration”. Even this phrase ‘consideration’ has not been defined in the Act. The department finds that the definition of ‘consideration’ as given in the Indian Contract Act, 1872 can safely be adopted to understand the concept of consideration. When so applied to the Act, ‘consideration’ for a service provided or agreed to be provided by service provider would mean anything which the service receiver or any other person has done or abstained from doing, or does or abstain from doing, or promises to do or to abstain from doing for receiving the service. In simple term, ‘consideration’ means everything received in return for a provision of service which includes monetary payment and any consideration of non- monetary nature as well as deferred consideration. The implications of the condition is that activity should be carried out for a ‘consideration’ Thus one may interpret that the activity carried out without any consideration like donations, gifts or free charities are therefore outside the ambit of service. Monetary consideration means any consideration received in the form of money. ‘Money’ includes not only cash but also cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveller’s cheque, money order, postal or electronic remittance or any such similar instrument when used as consideration to settle an obligation.

Thus as per the new definition of service, it must have three essential ingredients, it must be an activity for a consideration and performed by a person for another person. Thus in absence of any of these essential ingredients, the activity will be out of the ambit of service. One wonders, if one applies this new definition to all past cases, half of the pending litigations will be resolved. Too late, too little.

The Service Tax provisions in the budget spelt out seventeen areas on which no service tax will be charged but for rest everything else comes under the ambit of service, tax needs to be paid. However, these seventeen services scheduled in the negative list are a misnomer as the same are not without conditions and riders.

Advertisement is one of services which finds place in the negative list introduced vide proposed Section 66 D in the Service Tax provisions. Although selling of space or time slots for advertisements other than advertisements broadcast by radio or television are exempted services appearing in the negative list, any service in relation to such selling of space or time slots for advertisement will attract tax. Any service provided in or in relation to selling of space or time slots for advertisement in radio or television are also not exempted services.

One of the vital questions is why are Government and local authorities, liable to pay tax? Though, most of the services provided by the Government or local authorities are in the negative list, however, many services are now proposed to be subjected to services tax. One wonders what is the rationale behind taxing certain activities of the Government or local authorities? The money from government’s left pocket goes to its right pocket. The government explains, that only those activities of Government or local authorities are taxed where they compete with private entities. Their rationale is as follows- to provide a level playing field to private entities in these areas as exemption to Government in such activities would lead to competitive inequities; and to avoid break in Cenvat chain as the support services provided by Government are normally in the nature of intermediary services. It is not as simple as what government tries to explain. Now, how does a common man take Cenvat Credit !!! Majority of the services are consumed by a common man, for example, government proposes to impose service tax on postal services like speed post. It’s the common man who will pay 12.3% ST over and above the postal charges.

Another area, Transmission or distribution of electricity is brought under the negative list but again with a hidden rider. An ‘electricity transmission or distribution utility’ has also been defined in section 65B of the act. However if charges are collected by a developer or a housing society for distribution of electricity within a residential complex then are such services covered under this entry? The answer is negative, as the developer or the housing society would be covered under this entry only if it is entrusted with such function by the Central or a State government or if it is, for such distribution, holding a distribution licensee licensed under the Electricity Act, 2003. So such activity will have to be taxed . Similarly, the services provided by way installation of Gensets or similar equipment by private contractors for distribution of electricity are also not covered under negative list and does not cover services provided by private contractors. Thus majority of the services listed in the negative list are not covered under a blanket exclusion from the ambit of service tax and one has to carefully examine each aspect before arriving at any conclusion. Einstein was not far from truth when he said that hardest thing in the world to understand is Tax.

Top entrepreneurs to common men without any exception have pinned their hopes on the Government. It is pretty hard to predict what is in store for them when the Union budget is presented on Friday morning. Whether the budget satisfies their expectations or will be focused to boost revenue and growth are questions which will continue to haunt them for a few more days. The Finance Minister who expected to maintain a balance between expectations of tax planner and aspirations tax payers is expected to have a last minute look on the various representations received from the stake holders before crystallizing the proposals to be introduced in the budget. Although India with its benchmark strength of population and resultant purchasing power have been able to withstand the perils of the depression which have affected the countries world over, the threat of depression have not been totally eradicated and it continues to loom over the country giving sleepless nights to policy makers.

In the field of Service Tax the expectations in the trade are running wild and high. Service Tax being a new legislation introduced in the last decade of the 20th Century is still at a nascent stage of its growth heavily burdened with classification and valuation disputes. With the negative list of services slated to be introduced in the budget for widening the ambit and coverage of this form of taxation, a drastic fall in the ballooning figures of litigation is also expected which is bound to help both the beleaguered trade as well as the overburdened judiciary. The industrial output figures for the month of January, 2012 is also expected to have a bearing on the Budget proposals with an increase in the Service Tax rates now inevitable.

Unlike other forms of indirect taxation like Central Excise, Customs and Sales Tax, the levy of Service Tax did have an overbearing effect on those segments of people like professionals, rental income earners, self-employed persons etc for whom indirect taxation till the time of introduction of Service Tax was an unknown element. The mass non-compliance of the provisions is also indicative of lack of awareness and failure to cope up with this relatively new form of taxation. Coupled with these problems are the disputes initiated by the law enforcers in interpreting the law and related classification and valuation issues.

The trade cannot be blamed of expecting too much from the Finance Minister if the budget proposals are targeted to further simplify the rules and procedures to make them user friendly, rules out the interpretation issues by re-drafting the law, provides clarifications on vexed or contentious issues, provides immunity from penal action in genuine cases if service tax liability if discharged in full, constitutes an authority similar to Settlement Commission under Central Excise and Customs provisions, for settlement of disputes relating to Service Tax, cuts down the period of litigation involved in settlement of disputes. This will be only possible if we can have Budgets which are apolitical.