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 Franck Muller Long Island replica watch. 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.
Cartier Replica 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 am ount, no matter how much of the package they actually receive or use. Omega Replica
• 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.