If a person is providing service of marketing or promoting goods of some other person and such goods bear brand name or trade name, then whether such service provider can claim the benefit of small-scale service providers' exemption?
Central Excise Act may be called the Mother Act as majority of the procedures and provisions adopted in Service Tax are derived from there. The fact remains that till date no designated rank for Service Tax officers has been created, and as such all officers are on loan basis from Central excise department. This is the root cause of many a disputes as the officers interpret the provisions and procedures under the framework of Central Excise Act and rules, rather than the Finance Act 1994.
This approach gives rise to some basic follies committed by the department in the interpretation of provisions having common presence in both the Acts. One such common error in interpretation is in the case of small-scale service provider exemption.
In case of manufacture, the central excise notification no 8/2003 dated 1-3-2003 (as amended) governs the principles of small scale Industries-related exemptions. SSI units, whose turnover is less than Rs4 crore are eligible for the concessions. If an SSI unit does not avail Cenvat on inputs, a turnover of up to Rs1.5 crore is fully exempt.
However, no such exemption is available to specified goods bearing a brand name or trade name, whether registered or not, of another person. The brand name or trade name refers to a name or a mark, such as symbol, monogram, label, signature or invented word or writing which is used in relation to such specified goods for the purpose of indicating, or so as to indicate a connection in the course of trade between such specified goods and some person using such name or mark with or without any indication of the identity of that person.
Similarly, Service Tax Notification no. 6/2005 dated 01.03.2005 (as amended) exempts taxable services of aggregate value not exceeding Rs10 lakh in any financial year from the whole of the Service Tax leviable thereon under section 66 of the said Finance Act. Here too, the principle of brand name is there and the definition is more or less identical to that in central excise. However, there is slight difference between central excise and Service Tax in respect of such notification when it comes to brand name or trade name.
According to central excise, the exemption contained in this notification shall not apply to specified goods bearing a brand name or trade name, whether registered or not, of another person. Whereas in Service Tax the notification specifically says that nothing contained in this notification shall apply to taxable services provided by a person under a brand name or trade name, whether registered or not, of another person.
Thus, if a person manufactures goods bearing the brand name of some other person, he cannot claim benefit as an SSI. But, when a person is promoting or marketing goods, bearing a brand name or trade name, but such service is provided on his own account and not under any other person's brand name then such service provider can claim benefit as a small service provider.
The issue is very delicate and there is a subtle difference in both the situations. The pre-requisite for denying the small-scale service exemption to a service provider is that he should be providing taxable services under a brand name of another person. It cannot be denied merely on the fact that the service provider is earning by dealing in goods bearing another person's brand name. If the brand name/house mark etc. is promoted by a celebrity without reference to any specific product or services etc., it is difficult to classify it under BAS. Such activities, like mere establishing goodwill or adding value to a brand would fall under a newly introduced service in Budget 2010. Promotion or marketing of goods produced, provided or belonging to a client and promotion or marketing of services provided by the client are already covered under Business Auxiliary Services (BAS). Such activities would continue to remain classified under BAS.
For covering promotion of brand itself, in the Budget 2010 a new clause has been inserted under Section 65, whereby tax would be levied on service provided to any person, by any other person, through a business entity or otherwise, under a contract for promotion or marketing of a brand of goods, service, event or endorsement of name, including a trade name, logo or house mark of a business entity by appearing in advertisement and promotional event or carrying out any promotional activity for such goods, service or event.
The difference between the services classifiable under BAS and the newly-proposed service is that the latter has a wider coverage in the sense that mere promotion of a brand would attract tax under this service even if such promotions cannot be directly linked to promotion of a particular product or service. Thus, in case of a person providing service of marketing or promoting goods of some other person and such goods bearing a brand name or trade name, such service provider can claim the benefit of small-scale service providers' exemption, provided that the said services are not provided under another person's brand name.
The writer is founder of www.servicetaxonline.com and can be contacted at firstname.lastname@example.org