Eight new services under service tax net from July 1

The government had introduced eight new services in the Budget liable to service tax from July 1, 2010. It would be pertinent to relook at what these are:

1) Services of promoting, marketing, or organising of games of chance, including lottery.
Service provided by any person who is appointed by the state government to advertise, promote and sell lottery tickets and services provided in relation to promotion or marketing or organising, or assisting in organising games of chance, including lottery, bingo, lotto or online games, whether or not conducted through internet or other electronic networks, is covered under this service. Now agents selling lottery tickets, whether in physical form or online, will be covered under service tax.

2) Health service provided by a hospital, nursing home, or multi specialty clinic
l To an employee of any business entity, in relation to health check-up or preventive care, where the payment for such check-up or preventive care is made by such business entity directly to such hospital, nursing home or multi-specialty clinic; or
l to a person covered by health insurance scheme, for any health check-up or treatment, where the payment for such health check-up or treatment is made by the in insurance company directly to such hospital, nursing home or multi-specialty clinic.

3) Service provided of maintenance of medical records of employees of a business entity.
Service provided by any person in relation to storing, keeping and maintaining of medical records of the employees of the business entity is covered under this service. Records maintained by designated hospitals or by the independent record keepers for a charge are also brought under service tax.

4) Services of promoting of a ‘brand’ of goods, services, events, business entity etc..
Service provided to any other 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.

5) Services of permitting commercial use or exploitation of any event organised by a person or organisation.
Service provided to any person, by any other person, by granting the right or by permitting commercial use or exploitation of any event including an event relating to art, entertainment, business, sports or marriage organized by such other person.
The service now seeks to tax the amount received by the person or organisation, who permits the recording and broadcasting of the event from the broadcaster, or any other person, who seeks to commercially exploit the event.

6) Service provided by electricity exchanges.
Service provided by an electricity exchange in relation to trading, processing, clearing or settlement of spot contracts, term ahead contracts, seasonal contracts, derivatives and any other contract but does not include the transmission of electricity. The proposed new service seeks to tax the charges recovered for services in relation to assisting, regulating, controlling the business of trading, processing and settlement pertaining to sale or purchase of electricity by the associations authorised by Central Electricity Regulatory Commission.

7) Special services provided by a builder etc. to the prospective buyers such as preferential location or external or internal development of complexes on extra charges.
Service provided by the builder of residential or commercial complex or by any other authorised person appointed by such builder or providing preferential location or development of such complex covered under this service. But it does not cover services in relation to repair and maintenance, commercial or industrial construction of complex and in relation to parking place.

(a) prime/preferential location charges for allotting a flat/commercial space according to the choice of the buyer (i.e. Direction- sea facing, park facing, corner flat; Floor- first floor, top floor, Vastu- having the bed room in a particular direction; Number- lucky numbers);

(b) internal or external development charges which are collected for developing / maintaining parks, laying of sewerage and water pipelines, providing access roads and common lighting etc;

(c) fire-fighting installation charges; and

(d) power back up charges etc.

8) Services related to two types of copyrights hitherto not covered under existing  taxable service ‘Intellectual Property Right (IPR)’, namely, those on (a) cinematographic films; and (b) sound recording.

l Service provided to any person, by any other person, for—
(a) Transferring temporarily; or
(b) Permitting the use or enjoyment of any copyright defined in the Copyright Act, 1957, except the rights covered under sub-clause (a) of clause (1) of Section 13 of the said Act.

The Budget had modified the existing category of commercial and industrial construction as well as construction of residential complex to provide that the construction of new building or residential complex intended to sale (wholly or partly) whether before or during or after the construction shall be deemed to be a taxable service provided by the builder. If the builder doesn’t receive any consideration from the buyer before the issuance of a completion certificate then such sale would not be considered as a taxable service.

A lot of representation were received by the CBEC with regards to issue of completion certificate by the authorities as there were a lot of delays in the issue of the same due to one reason or the another and hence the CBEC has notified the following persons as competent authority to issue completion certificates.

(i) Architect registered with the Council of Architecture constituted under the Architects Act, 1972( 20 of 1972); or

(ii) Chartered engineer registered with the Institution of Engineers (India); or

(ii) Licensed surveyor of the respective local body of the city or town or village or development or planning authority;

The CBEC had in the Budget proposed to levy service tax on passengers travelling by air transport from any airport in India for domestic and international journey. Now from July 1, 2010 any person undertaking a domestic journey will have to pay 10% of the gross fare or Rs 100, whichever is less, & any person undertaking an international journey will have to pay 10% of the gross fare or Rs 500, whichever is less.

The government has exempted transit passengers who don’t pass through immigration and doesn’t leave customs area and continues his journey to a place outside India; and a person employed or engaged by the aircraft operator in any capacity on board the aircraft from the levy of this tax.

Passengers embarking on a journey originating or terminating in an airport located in Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura or Baghdogra (in West Bengal) are also exempted from service tax under this category.

From July 1, 2010 the service providers who provide service under commercial or industrial construction & construction of complex will now have to charge service tax only on 25% of the value of the service as against on 33% previously charged. This is in line with the exemption which is provided to builders under the new category.

In the Budget the exemption given to sporting events from paying service tax on sponsorship was removed but now it is provided that tournaments and championship organised by India Olympic Association, National Sports Federation etc are exempted from paying service tax on the sponsorship amount.
Service tax on Transport of goods by railway has been postponed till January 1, 2011.