Project

A STUDY ON

“TAXATION WITH REFERENCE TO SERVICE TAX”

Project Report Submitted in partial fulfillment of the requirement for the award of

the degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted by: Under the guidance of:

NRTYA VARDHANAPU Prof. Noor Basha Abdul

Y9BU20050 M.com., M.Phil., Ph.D.

Department of Commerce

& Business Administration

Department of Commerce & Business Administration

Acharya Nagarjuna University

Nagarjuna Nagar

Guntur

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CERTIFICATE

This is to certify that this project report entitled “TAXATION WITH

REFERENCE TO SERVICE TAX” is a bonafide work of NRTYA

VARDHANAPU submitted in Partial fulfillment of the requirements for the award

of the degree of MASTER OF BUSINESS ADMINISTRATION by Acharya

Nagarjuna University, Nagarjuna Nagar.

Place: Guntur Project Guide:

Date:09.Jan.2010 Prof. Noor Basha Abdul

M.com., M.Phil.,

Ph.D.

Department of Commerce

& Business Administration

Prof. T. Uma Maheshwara Rao

Head Of the Department

Commerce & Business Administration

Acharya Nagarjuna University

Guntur.

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DECLARATION

I, NRTYA VARDHANAPU,Regd.No.Y9BU20050 a student of

MBA(2008-10) batch, Acharya Nagarjuna University, Guntur here by declare that

the project report entitled “TAXATION WITH REFERENCE TO SERVICE

TAX” has been composed by me and has not previously formed the basis for the

award of any degree, or dipoloma or other similar title.

Place:

Date: (NRTYA VARDHANAPU)

REGD.NO.Y9BU20050

MBA(2008-2010)

ACHARYA NAGARJUNA UNIVERSITY

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Index

Chapter 1……………………………………………………………………..

Introduction

Industry profile

Chapter 2……………………………………………………………………

Company Profile

Chapter 3……………………………………………………………………

Objectives and Analysis

Chapter 4……………………………………………………………………

Interpretation of data

Chapter 5……………………………………………………………………

Suggestions

Challenges

Conclusions

Bibliography

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Chapter-1

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INTRODUCTION

The Tax Structure in India is quite strong and follows the financial year. The

taxation under the tax structure in India is applicable for any kind of income

pertaining to a person working as an employee under the public sector units,

private sector units, foreign companies in India, Departments of the State

Governments of India, and Departments of the Central Government of India or self

employed individuals engaged in commercial activities which is legal in nature.

The several corporations engaged in commercial activities also come under

the taxation. The public bodies, state governments and central government have

clear demarcation of their functioning. The central government imposes tax on all

kinds of income such as central excise, customs duties, and service tax apart from

income pertaining to agriculture. The State Governments of India is responsible for

imposing tax pertaining to Value Added Tax (VAT), sales tax, income from

agriculture, state excise duty, stamp duty, professional tax, land revenue, etc. Taxes

imposed by the local bodies are pertaining to octroi tax, water supply utilities,

drainage and sewage utilities, property tax, etc.

Types of Taxes

a. Direct Taxes

b. Indirect Taxes

a. Direct Tax

A Direct Tax is a kind of charge, which is imposed directly on the tax

payer. The examples of direct tax include property tax and income tax.

Alternatively, it can be said that a direct tax is one that is taken away from one's

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salary or wages. When the tax is imposed by the government upon the property,

then it is called property tax, which is also a direct tax.

Direct tax in India

In India, all the direct tax related matters are taken care by the Central Board

of Direct Taxes (CBDT), which is a significant division of the Department of

Revenue, Ministry of Finance, and Government of India. CBDT is functioning

under the Central Board of Revenue Act 1963. CBDT is responsible for

formulating and enforcing direct taxes in India. One of the vital functions of CBDT

is to administer direct taxes law followed by Income Tax Department.

The tax system in India is primarily demarcated under the control of Central and

State Government. The Central Government is primarily responsible for imposing

taxes on income, custom duties, central excise and service tax. The State

Government is responsible for levying taxes like State Excise, stamp duty, VAT

(Value Added Tax), land revenue and professional tax. The local bodies are also

authorized to impose tax on properties, octroi and many more.

Examples of Direct Taxes

Some of the examples of direct taxes include capital gains tax, personal

income tax, tax on corporate income, and tax incentives.

b. Indirect tax

Indirect taxes are the charges that are levied on goods and services. Some of the

significant indirect taxes include VAT (Value Added Tax), sales tax, excise tax,

stamp duties and expenditure tax.

Unlike Direct Taxes, Indirect Taxes are not levied on individuals, but on

goods and services. Customers indirectly pay this tax in the form of higher prices.

For example, it can be said that while purchasing goods from a retail shop, the

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retail sales tax is actually paid by the customers. The retailer eventually passes this

tax to the respective authority. The indirect tax, actually raises the price of a good

and the customers purchase by paying more for that product.

Indirect tax in India

The indirect tax in India constitutes a group of tax laws and regulations. The

indirect taxes in India are enforced upon different activities including

manufacturing, trading and imports. Indirect taxes influence all the business lines

in India.

Examples of Indirect Taxes

Excise Tax: It is an indirect tax levied on the sale of a specific good. It is a

vital source of revenue for the Government of India.

Service Tax: This indirect tax is a tax levied on service providers in India

except Jammu and Kashmir. Here tax is levied on the price of a good or service,

Sales tax: It is an indirect tax levied by the government at the point of sale

on retail goods and services. Sales tax is collected by the retailer, which

ultimately forwarded to the state of India. Sales tax is regarded as one of the vital

sources of revenue to the states of India. In India, each state has its own sales tax

act.

Expenditure tax: This indirect tax is enforced under the Expenditure Tax

Act, 1987. The hotels in India collect expenditure tax from their customers and

eventually deposit to the Central Government.

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INDUSTRY PROFILE

Central Board of Excise and Customs (CBEC)

The responsibility of collecting the tax lies with the Central Board of Excise

and Customs(CBEC). Central Board of Excise and Customs (CBEC) is a part of

the Department of Revenue under the Ministry of Finance, Government of India. It

deals with the tasks of formulation of policy concerning levy and collection of

Customs and Central Excise duties, prevention of smuggling and administration of

matters relating to Customs, Central Excise and Narcotics to the extent under

CBEC's purview. The Board is the administrative authority for its subordinate

organizations, including Custom Houses, Central Excise Commissionerates and the

Central Revenues Control Laboratory.

SERVICE TAX

Service Tax is a tax on services rendered by one person to another. It is not

meant to be a tax on anything else. The levy of ST therefore requires that there

should be 2 important aspects:

There should be a tax by means of imposition of a charge.

The charge should be on Services rendered.

Service Tax was introduced for the first time in the year 1994 through the

insertion of Chapter V in the Finance Act, 1994 (herein after referred to as ‘the

Act’). The levy of Service Tax was confined to just three services in the organized

sector viz. telephone, General Insurance and Stock Broking. The Act provides for

the method of levy, the circumstances in which the levy would arise, the

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procedures to be followed and allied subjects like registration, self assessment,

penalty etc.

What is Tax?

Tax is observed is the amount payable as a result of “the charging

provision”. It is a compulsory exaction of money by a public authority for public

purposes, the payment of which is enforced by law. Therefore, the charging

provision has to create a charge. There is no doubt that if the words of taxing

statute fail, then so must the tax. However, any payment not enforced by law

cannot be collected/ retained by the government and if the amount is collected, the

same has to be refunded back.

What is service?

It is a term that has very wide connotations and may resemble any activity

done specifically for the client, the fruits whereof are to be enjoyed by the client. In

certain cases, however, a transaction may constitute a service even in the absence

of any activity (Rendering of financial services being one of the examples). It is

however, impossible to conceive that a person can provide service to himself.

Service tax as an indirect tax

Service tax is an indirect tax and therefore the same can be passed on to the

customers. However, whether the service provider is in a position to the collect the

same from the customer or not depends on the contractual terms. As far as the

liability to the pay the tax to the government is concerned, the same vests with the

service provider whether or not he is in a position to collect it from the customer.

The tax is a transaction driven tax and therefore each transaction can result in

different tax consequences. It is not service provider specific.

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Imposition of service tax in India:

Background

The share of service sector in the Indian economy has increased significantly

over the years. As the services sector emerged as the fastest growing sector in

Indian economy, much faster than both primary and secondary sectors, it has

altered the basic structure of the Indian economy. Thus, the services sector has

made its presence felt as the largest contributor to the GDP in the country with a

contribution of about 69 percent of GDP.

The growth of any economy is evidenced by the vibrant growth of its service

sector. Services constitute a very heterogeneous spectrum of economic activities.

Today services cover a wide range of activities and most of them are no longer

person-centric but are institution-centric. For example, banking, insurance &

telecom sectors are handled by large institutions and constitute the backbone of the

economy.

While the largest component of GDP in the country comes from the services

sector, its contribution to the exchequer has been abysmal and not at all

commensurate with its predominant position in the economy. With the increase in

incomes, increasing proportion of such incomes is spent on the consumption of

services like entertainment, travel & tourism, etc. while the goods produced and

consumed are subject to multiple levies such as union excise duties, sales tax, entry

tax or octroi, etc by central, state and local governments, most of the services are

not directly subject to taxation. Thus, production and consumption of services,

which constitute a large and growing proportion of the economy, contribute very

little by way of taxation. Extending the tax to the services sector is imperative not

only to ensure neutrality and horizontal equity in taxation but also to broaden the

tax base and improve revenue productivity of the tax system.

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Economic rationale

The most important factor warranting the levy of taxation on services is the

need to evolve a coordinated system of domestic trade taxes both at central and

state levels. Such a coordinated taxation system is most likely to be on the model

of the value added tax (VAT) mechanism. Under the vat mechanism, it is

imperative that the entire value addition chain be taxed. Any exemption to any

constituent within the value addition chain results in the break of the vat

mechanism resulting in the absorption of the taxes by someone who is not the end

consumer, this results in cascading impact of the indirect taxes which is likely to

result in cost push inflation. Services enter into the production of commodities and

vice versa and in order to relieve taxes on inputs, be they on goods or services, it is

important to levy the tax on both goods and services. To summarize taxing only

goods manufactured in the industrial sector thus distorts the economic system due

to the following reasons:

It affects the consumption of goods vis-à-vis services.

The burden of taxation falls on one class of people whereas the other

class feels privileged. Even today, for example, one feels that the legal

fraternity is somewhat privileged to stay out of the service tax net.

This lead to issues of re-characterization of transactions. For example,

there were many cases where the manufacture was attempted on job work

basis so as to avoid the excise and sales tax liability.

The CENVAT chain is disturbed if one section the trade is not under the

net. For example, today traders are not under the central vat and hence

service tax on services consumed by them becomes a cost. This results in

cascading effect of taxes if the goods sold by these traders are again used

by a manufacturer who is required to pay excise duty.

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To avoid all these issues, in developed economies, consumption of goods and

services is treated and taxed alike to an integrated goods and services tax (GST) or

a value added tax (VAT).

Introduction of Tax in 1994

In this background, Dr. Manmohan Singh, the then Union Finance Minister,

in his budget Speech for the year 1994-1995 introduced the new concept of

Service Tax and stated as under:

“There is no sound reason for exempting services from taxation. I, therefore,

propose to make a modest effort in his direction by imposing a tax on services

of telephones, non-life insurance, and stock brokers”.

The introduction of service tax was under the residuary entry of the

Constitution and as such, could not be through a separate enactment. Therefore,

the service tax was levied under Chapter V of the Finance Act, 1994.

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SERVICES

The provisions relating to Service Tax were brought into force with effect

from 1 July 1994. The services, brought under the tax net in the year 1994-95, are

as below:

1.Advertising Agency’s Services:

Def: Section 65(3) of the Act defines an advertising agency as follows:

“Advertising agency” means any person engaged in providing any service

connected with the making, preparations, display or exhibition of advertisements

and includes an advertising consultant.

2. Airport Services:

Def: Airport has been defined under section 65(3c) of the Act. As per the Airports

Authority of India Act, 1994, “airport” is defined under section 2(b) as follows:

“Airport” means a landing and taking off area for aircrafts, usually with runaways

and aircraft maintenance and passenger facilities and includes aerodrome as

defined in clause (2) of section 2 of the Aircraft Act, 1934.

3.Air Travel Agent’s Services:

Def: Section 65(4) of the Act defines an ‘air travel agent’ as follows:

“Air travel agent” means any person engaged in providing any service connected

with the booking of passage for travel by air.

4. Architect’s Services:

Def: Section 65(6) of the Act defines an ‘architect’ as follows:

“architect” means any person whose name is, for the time being, entered in the

register of architects maintained under section 23 of the Architect’s Act,1972 (20

of 1972), and also includes any commercial concern engaged in any manner,

whether directly or indirectly, in rendering services in the field of architecture.

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5. Assess Management Service:

Def: “Assess Management” including portfolio management and all forms of fund

management, provided by a banking company or a financial institution including a

non-banking financial company or any other body corporate or commercial

concern is leviable to Service Tax under banking and other financial services.

6. Auctioneer’s Services:

Def: Section 65(7a) defines ‘auction of the property’ as follows:

“Auction of property includes calling the auction or providing a facility,

advertising or illustrating services, pre-auction price estimates, short term storage

services, repair or restoration services in relation to auction of property”.

7. Authorized Service Station’s Services:

Def: With the effect from 16-6-2005, Section 65(9) defines “authorized service

station” means any service station, or centre, authorized by any motor vehicle

manufacturer, to carry out any service, repair, reconditioning or restoration of any

motor car, light motor vehicle or two-wheeled motor vehicle manufactured by such

manufacturer.

8. ATM operations, Maintenance or Management Services:

Def: Section 65(9b) of the Act defines “automated teller machine operations,

maintenance or management services” means any service provided in relation to

automated teller machines and includes site selection, contracting of location,

acquisition, financing, installation, certification, connection, maintenance,

transaction processing, cash forecasting, replenishment, reconciliation and value

added services.

9. Banking and other financial services:

Def: Banking means the accepting for the purpose of lending or investment, of

deposits of money from public, repayable on demand or otherwise, and

withdrawable by cheque, draft, order or otherwise. “Financial Institution” means

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any non-banking institution which carries on as its business or part of its business

any of the following activities, namely the financing; the acquisition of shares,

stocks, bonds, debts; letting or delivering of any goods to a hirer; etc

10. Beauty Treatment Service:

Def: Section 65(17) of the Act, as amended with effect from 16-6-2005, defines

“beauty treatment” which includes hair cutting, hair dyeing, hair dressing, face and

beauty treatment, cosmetic treatment, manicure, pedicure or counseling services on

beauty face care or make up or such other similar services.

11. Broadcasting Services:

Def: Broadcasting means the dissemination of any form of communication like

signs, signals, writing, pictures, images and sounds of all kinds by transmission of

electro-magnetic waves through space or through cables intended to be received by

the general public either directly or indirectly through the medium of relay stations

and all its grammatical variations and cognate expressions shall be construed

accordingly.

12. Business Auxiliary Services:

Def: According to Section 65(19) of the Act, with effect from 10-9-2004, Business

Auxiliary Service means any service in relation to:

(i) Promotion or marketing or sale of goods

(ii) Promotion or marketing of services

(iii) Any customer care service

(iv) Procurement of goods or services (inputs for the client)

(v) Production or processing of goods on behalf of the client

(vi) A service incidental or auxiliary to any activity specified in sub-clauses (i) to

(v)

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13. Business Exhibition Services:

Def: Section 65(19a) of the Act “Business Exhibition” means an exhibition (a) to

market (b) to promote (c) to advertise (d) to showcase.

14. Business Support Services:

Def: Section 65(104c) defines as “support services of business or commerce”

means services provided in relation to business or commerce and includes

evaluation of prospective customers, telemarketing, processing or purchase orders

and fulfillment services, information and tracking of delivery schedules, managing

distribution and logistics, customer relationship management services, accounting

and processing of transactions, operational assistance for marketing, formulation of

customer service and pricing policies, infrastructural support services and other

transaction processing.

15. Cable Services:

Def: Section 65(22) of the Act defines ‘cable services’ as having the meaning

assigned to it under clause (b) of section 2 of the CTN Act. This clause in the CTN

Act reads as follows:

“Cable services” means the transmission by cables of a programme including

retransmission by cable of any broadcast television signals, where CTN is Cable

Television Networks.

16. Cargo Handling Service:

Def: section 65(23) of the Act initially defined ‘cargo handling services’ as

follows:

“Cargo handling services” means loading, packing or unpacking of cargo and

includes cargo handling services provided for freight in special containers or for

non-containerized freight, services provided by a container freight terminal or any

other freight terminal, for all modes of transport and cargo handling services

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incidental to freight, but does not include handling of export cargo or passenger

baggage or mere transportation of goods.

17. Chartered Accountant’s Services:

Def: Section 65(83) of the Act defines a practicing Chartered Accountant as

follows:

“Practicing Chartered Accountant means a person, who is a member of the Institute

of Chartered Accountant’s of India and is holding a certificate of practice granted

under the provisions of the Chartered Accountant’s Act, 1949 (38 of 1949) and

includes any concern engaged in rendering services in the field of Chartered

Accountancy”.

18. Cleaning Activity Service:

Def: Section 65(24b) of the Act defines ‘cleaning activity’ as follows:

“Cleaning Activity” means cleaning including specialized cleaning services such

as disinfecting, exterminating or sterilizing of objects or premises of

i) Commercial or industrial buildings and premises thereof; or

ii) Factory, plant and machinery, tank or reservoir of such commercial or industrial

buildings and premises thereof

19. Clearing and forwarding agent’s service:

Def: Section 65(25) of the Act defines as ‘clearing and forwarding agent’ as

follows:

“Clearing and forwarding agent” means any person who is engages in providing

any service, either directly or indirectly, connected with the clearing and

forwarding operations in any manner to any other person and includes a

consignment agent.

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20. Club or association service:

Def: Section 65(25a) defines ‘club or association’ as follows:

“Club or association” means any person or body of persons providing services,

facilities or advantages, for a subscription or any other amount, to its members”

21. Commercial or Industrial Construction Services:

Def: Section 65(25b) defines “Construction Service” as

a) Construction of a new building or a civil structure or a part thereof

b) Construction of pipeline or conduit

c) Completion and finishing services such as glazing, plastering, painting, floor

and wall tiling, wall covering and wall papering, wood and metal joinery and

carpentry, fencing and railing, construction of swimming pools, acoustic

applications or fittings and other similar services in relation to building or

civil structure

d) Repair, alteration, renovation or restoration of, or similar services in relation

to, building or civil structure, pipeline or conduit

22. Commercial Training or Coaching Service:

Def: Section 65(26) of the Act defines this service as follows:

“Commercial training or coaching” means any training or coaching provided by a

commercial training or coaching centre.

23. Commodity Exchange Service:

Def: NCDEX (National Commodities and Derivatives Exchanges) and Multi

Commodity Exchanges of India (MCX) provide electronic platform and other

related services for trading in commodities.

24. Company Secretary’s Services:

Def: ‘Practicing Company Secretary’ is defined in Section 65(85) of the Act as to

mean ‘a person who is a member of the institute of company secretaries of India

and holding a certificate of practice granted under the provisions of the company

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secretaries Act, 1980 and includes any concern engaged in rendering services in

the field of company secretary ship.

25. Computer Network Services:

Def: Section 65(75) amended by the Finance Act , 2008, with effect from 16-5-

2008 is as follows: On-line information and data base access or retrieval means

providing data or information, retrievable or otherwise to any person, in electronic

form through a computer network

26. Construction of complex service:

Def: section 65(30a) of the act, as inserted by the finance act, 2005, defines

‘construction of complex’ as follows:

Means

a. Construction of a new residential complex or a part thereof; or

b. Completion and finishing services in relation to residential complex such as

glazing plastering, painting , floor and wall tiling, wall covering and wall

papering, wood and metal joinery and carpentry, fencing and railing,

construction on swimming pools, acoustic applications or fittings and other

similar services

c. Repair, alteration, renovation or restoration of, or similar services in relation

to, residential complex’

27. Consulting engineer’s services:

Def: Clause (31) of section 65, as amended with effect from 16-5-2008, defines a

‘consulting engineer’ as follows:

Consulting engineer means any professionally qualified engineer or any body

corporate or any other firm who, either directly or indirectly, renders any advice,

consultancy or technical assistance in any manner to any person in one or more

disciplines of engineering.

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28. Convention services:

Def: Section 65(32) of the act defines a convention as follows:

“‘Convention’ means a formal meeting or assembly which is not open to the

general public, but does not include a meeting or assembly, the principle purpose

of which is to provide any type of amusement, entertainment or recreation”

29. Cost Accountant’s services:

Def: Section 65(84) of the Act defines ‘practicing cost accountant’ as follows:

“ ‘Practicing cost accountant’ means a person who is a member of the Institute of

cost and works accountants of India and is holding a certificate of practice granted

under the provisions of the cost and works accountants Act, 1959 and includes any

concern engaged in rendering services in the field of cost accountancy”.

30. Courier service:

Def: section 65(33) of the Act defines a courier agency as follows:

“‘Courier agency’ means any person engaged in the door-to-door transportation of

time-sensitive documents, goods or articles utilizing the services of a person ,

either directly or indirectly, to carry or accompany such documents, goods or

articles”.

31. Credit card, debit card, charge card or other payment card service:

Def: Clause (33a) of section 65 defines the service as follows:

“Credit card, debit card, charge card or other payment card service” includes any

service provided-

(i) By a banking company, financial institution including non-banking financial

company or any other person, issuing such card to a card holder

(ii) By any person to an issuing bank in relation to such card business, including

receipt and processing of application, transfer of embossing data to issuing bank’s

personalization agency, automated teller machine personal identification number

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generation, renewal or replacement of card, change of address, enhancement of

credit limit, payment updation and statement generation

(iii) By any person, including an issuing bank and an acquiring bank, to any other

person in relation to settlement of any amount transacted through such card

(iv) In relation to joint promotional cards or affinity cards or co-branded cards

(v) In relation to promotion and marketing of goods and services through such card

(vi) By a person, to an issuing bank or the holder of such card, for making use of

automated teller machines of such person and

(vii) By the owner of trade marks or brand name to the issuing bank under an

agreement, for use of the trade mark or brand name or other services in relation to

such card, whether or not such owner is a club or association and the issuing bank

is a member of such club or association.

32. Credit rating agency’s services:

Def: Section 65(34) of the Act defines a credit rating agency as follows:

“‘Credit rating agency’ means any person engaged in the business of credit rating

of any debt

Obligation or of any project or programme requiring finance, whether in the form

of debt or otherwise, and includes credit rating of any financial obligation,

instrument or security, which has the purpose of providing a potential investor or

any other person any information pertaining to the relative safety of timely

payment of interest or principal”

33. Custom house agent’s services:

Def: section 65(35) of the Act defines a CHA as follows:

“ ‘Custom house agent’ means a person licensed, temporarily or otherwise, under

the regulations made under the sub-section(2) of section 146 of the customs Act,

1962 (52 of 1962)”.

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34. Design services:

Def: section 65(36b) of the Act defines ‘design services’ as follows:

“Design services” includes services provided in relation to designing of furniture,

consumer products, industrial products, packages, logos, graphics, websites and

corporates identity designing and production of three dimensional models

35. Development and supply of content service for use in certain services:

Def: Under section 65(36c) of the Act, ‘development and supply of content’

includes development and supply of mobile value added services, music, movie

clips, ringtones, wallpaper, mobile games, data, whether or not aggregated,

information, news and animation films.

36. Dredging service:

Def: section 65(36a) of the Act ‘dredging’ as follows:

“dredging” includes removal of material including silt, sediments, rocks, sand,

refuse, debris, plant or animal matter in any excavating, cleaning, deepening,

widening or lengthening, either permanently or temporarily, of any river, port,

harbour, backwater or estuary.

37. Dry Cleaning services:

Def: Section 65(37) of the Act gives an inclusive definition of the term ‘dry

cleaning’ which reads as including ‘dry cleaning of apparels, garments, or other

textile, fur or leather articles’

38. Erection, commissioning or installation service:

Def: Section 65(39a) of the Act defines the term ‘erection, commissioning or

installation’ as follows:

From 1-5-2006, “erection, commissioning or installation” means any service

provided by a commissioning and installation agency, in relation to-

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(i) erection, commissioning or installation of plant, machinery, equipment or

structures, whether pre-fabricated or otherwise or

(ii) installation of-

(a) Electrical and electronic devices, including wirings or fittings therefore of

(b) Plumbing, drain laying or other installations for transport of fluids or

(c) Heating, ventilation or air-conditioning including related pipe work, duct

work and sheet metal work or

(d) Thermal insulation, sound insulation, fire proofing or water proofing

(e) Lift and escalator fire escape stair cases or traveletors

(f) Such other similar services

39. Event Management service:

Def: Section 65(40) of the Act defines event management as follows:

‘“Event management” means any services provided in relation to planning,

promotion, organizing or presentation on any arts, entertainment, business, sports,

marriage or any other event and includes any consultations provided in this regard’

40. Fashion designing service:

Def: section 65(43) of the Act defines fashion designing as follows:

‘“fashion designing” includes any activity relating to conceptualizing, outlining,

creating the designs and preparing patterns for costumes, apparels, garments,

clothing accessories, jewellery or any other articles intended to be worn by human

beings and any other service incidental thereto’

41. Forward contract service:

Def: Section 65(46a) defines the words forward contract as follows:

“Forward contract” has the meaning assigned to it in clause (c) of section 2 of the

forward contracts (regulation) act, 1952 (74 of 1952)

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The forward contracts (regulation) Act, 1952 (FCRA) defines the words ‘forward

contract’ as to mean the contract for delivery of goods and which is not for ready

delivery contract

42. Franchise service:

Def: Section 65(47) of the Act, as originally inserted defined the word ‘franchise’

as follows: “franchise” means an agreement by which

(i) franchisee is granted representational right to sell or manufacture goods

or to provide service or undertake any process identified with franchisor,

whether or not a trade mark, service mark, trade name or logo or any

such symbol, as the case may be, is involved

(ii) the franchisor provides concepts of business operation to franchisee,

including know-how, method of operation, managerial expertise,

marketing technique or training and standards of quality control except

passing on the ownership of all know-how to franchisee

(iii) the franchisee is required to pay to the franchisor, directly or indirectly, a

fee and

(iv) the franchisee is under an obligation not to engage in selling or providing

similar goods or services or process, identified with any other person

43. General insurance service:

Def: Clause (58) of section 65 of the Act read as follows:

“Insurer” means any person carrying on the general insurance business or life

insurance business and includes a reinsurer.

44. Health and fitness services:

Def: Section 65(51) of the Act defines health and fitness services as under:

‘“health and fitness service” means service for physical well being such as sauna

and steam bath, Turkish bath, solarium, spas, reducing or slimming saloons,

gymnasium, yoga, meditation, massage or any other like service’.

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45. Information Technology Software Service:

Def: Section 65(53a) of the Act gives the following definition for the term

‘information technology software’:

“ ‘Information technology software’ means any representation of instructions, data,

sound or image, including source code and object code, recorded in a machine

readable form, and capable of being manipulated or providing interactivity to a

user, by means of a computer or an automatic data processing machine or any other

device or equipment”.

46. Insurance Auxiliary Services:

Def: Under section 65(55) of the Act, the term ‘Insurance Auxiliary service’ means

any service provided by an actuary, an intermediary or insurance intermediary or

an insurance agent in relation to general insurance business or life insurance

business and includes risk assessment, claim settlement, survey and loss

assessment.

47. Intellectual Property services:

Def: The words ‘intellectual property right’ have been defined under section

65(55a) as follows:

‘“intellectual property right” means any right to intangible property, namely, trade

marks, designs, patents or any other similar intangible property, under any law for

the time being in force, but does not include copyright.’

48. Interior Decorator’s services:

Def: Section 65(59) of the Act defines an interior decorator as follows:

‘Interior decorator’ means any person engaged, whether directly or indirectly, in

the business of providing by way of advice, consultancy, technical assistance or in

any other manner, services related to planning, design or beautification of spaces,

whether man-made or otherwise and includes a landscape designer.

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49. Internet Café service:

Def: Section 65(57) of the Act reads as follows:

‘Internet Café’ means a commercial establishment providing facility accessing

internet.

50. Internet Telecommunication Services:

Def: With effect from 16-5-2008, the term ‘internet telecommunication service’

has been defined in section 65(57a) as follows:

‘Internet telecommunication service’ includes

(i) internet backbone services, including carrier services of internet traffic by

one internet service provider to another internet service provider

(ii) internet access services, including provision of a direct connection to the

internet and space for the customer’s web page

(iii) provision of telecommunication services, including fax, telephone, audio

conferencing and video conferencing, over the internet

51. Life Insurance service:

Def: Section 65(61) of the Act defines ‘life Insurance business’ as follows:

“Life insurance business” has the meaning assigned to it in clause (11) of section 2

of the Insurance Act, 1938 (4 of 1938).

Section 2(11) of the Insurance Act, 1938 read as follows:

“Life Insurance business” means the business of effecting contracts of insurance

upon human life, including any contract whereby the payment of money is assured

on death (except death by accident only) or the happening of any contingency

dependent on human life, and any contract which is subject to payment of

premiums for a term dependent on human life and shall be deemed to include:

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(a) the granting of disability and double or triple indemnity accident benefits, if

so provided in the contract of insurance

(b) the granting of annuities upon human life and

(c) the granting of superannuation allowances and annuities payable out of any

fund applicable solely to the relief and maintenance of persons engaged or

who have been engaged in any particular profession, trade or employment or

of the dependents of such person

52. Mailing List Compilation and Mailing Service:

Def: section 65(63a) of the finance Act, 1994 defines ‘mailing list compilation and

mailing’ to mean

(i) Compiling and providing list of name, address and any other information

from any source

(ii) Sending document, information, goods or any other material in a packet,

by whatever name called, by addressing, stuffing, sealing, metering or

mailing

53. Management, maintenance or repair service:

Def: Section 65(64) defines maintenance or repair as follows:

“Maintenance or repair” means any service provided by

(i) any person a maintenance contract or agreement or

(ii) a manufacturer or any person authorized by him

in relation to a maintenance or repair or servicing of any goods or equipment,

excluding motor vehicle

54. Management of Investment under ULIP service:

Introduction: The full form of ULIP is Unit Linked Insurance Plan. Normally, the

saving component is invested by the life insurance company as per the guidelines

provided by IRDA (Insurance Regulatory Development Authority). The

investment along with return enables the insurance company to settle the claim or

28

pay the amount on maturity. Many insurance companies have floated insurance

product where the option is given to the policy holders. The policy document like

brochure provides for option of investing in different type of fund. The insurance

companies invest the amount in a particular fund. The insurance company recovers

certain charges for various purposes from the policy holders either from the return

on investment or from the premium amount. There have been certain enquiries in

the past for levy of service tax on these charges recovered by the companies

engaged in life insurance business. The finance Act, 2008 has introduced a new

category by which Service Tax is imposed on recovery on such charges. It may be

noted that risk cover portion of the premium will continue to be taxable under life

insurance service

55. Management or business consultant’s services:

Def: Section 65(65) of the Act, as it stood prior to 1-5-2006, defined the term

‘management consultant’ as follows:

“management consultant” means any person who is engaged in providing any

service, either directly or indirectly , in connection with the management of any

organization in any manner and includes any person who renders any advice ,

consultancy or technical assistance, relating to conceptualizing, devising,

development, modification, rectification or upgradation of any working system of

any organization.

56. Mandap Keeper’s Services:

Def: Section 65(67) of the Act defines a ‘Mandap Keeper’ as follows:

‘Mandap Keeper’ means a person who allows temporary occupation of a mandap

for consideration for organizing any official, social or business function.

57. Manpower Recruitment and supply agency’s services:

Def: Section 65(68) of the Act defined a ‘manpower recruitment agency’ as

follows:

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“Manpower recruitment agency” means any commercial concern engaged in

providing any service, directly or indirectly, in any manner for recruitment of

manpower, to a client.

58. Market research agency’s services:

Def: Section 65(69) of the Act defines Market research agency as any person

engaged in conducting market research in any manner, in relation to any product,

service or utility, including all types of customized and syndicated research

services

59. Mining of mineral, oil or gas service:

What is mining?

The word ‘mining’ has not been defined in the Act. The word ‘mining’ in

commercial parlance means a ‘bodily removal of the rock from the bottom of the

pit’. It is a process of extracting metallic or non-metallic mineral deposits,

including gemstones, from below the earth’s surface. Mine is a subterranean

excavation unlike quarry, pit and opencast which are reserved for workings open to

day light.

The Mines Act, 1952 defines the word ‘mine’ as follows:

‘Mine’ means an excavation where any operation for the purpose of searching for

or obtaining minerals has been or is being carried on.

60. Opinion Poll services:

Def: The term ‘opinion poll’ has been defined under section 65(75a) as follows:

“Opinion poll” means any service designed to secure information on public

opinion regarding social, economic, political or other issues.

61. Other Port services:

Def: The term ‘port service’ is defined in section 65(82) of the Act, as follows:

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“Port service” means any service rendered by a port or other port or any person

authorized by such port or other port, in any manner, in relation to a vessel or

goods.

62. Outdoor Caterer’s service:

Def: With the effect from 16-6-2005, section 65(76a) read as follows:

“Outdoor caterer” means a caterer engaged in providing services in connection

with catering at a place other than his own but including a place provided by way

of tenancy or otherwise by the person receiving such services.

Abatement in tax:

Taxable service provided by an outdoor caterer is exempted from so much of the

service tax leviable thereon under section 66 of the Act, as is in excess of the

amount of service tax calculated on a value which is equivalent to 50% of the gross

amount charged from the service receiver by such caterer for the services provided

in relation to catering (abatement of 50% of tax)

63. Packaging activity services:

Def: Section 65(76b) of the Act defines ‘packaging activity’ as follows:

“Packaging activity” means packaging of goods including pouch filling, bottling,

labeling or imprinting of the package, but does not include any packaging activity

that amounts to ‘manufacture’ within the meaning of clause (f) of section 2 of the

Central Excise Act, 1944.

64. Pandal or Shamiana Contractor’s services:

Def: Section 65(77b) of the Act defines a ‘Pandal or Shamiana contractor’ as

follows:

‘Pandal or Shamiana contractor’ means a person engaged in providing any service,

either directly or indirectly, in connection with the preparation, arrangement,

erection or decoration of a pandal or Shamiana and includes the supply of

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furniture, fixtures, lights and light fittings, floor coverings and other articles for use

therein.

Abatement in tax:

Taxable service provided by a pandal or a Shamiana contractor to a service

receiver is exempted from so much of the service tax leviable thereon as is in

excess of the amount of service tax calculated on a value which is equivalent to

70% of the gross amount charged from a service receiver by such contractor, for

the services provided in relation to a pandal or Shamiana in any manner, including

services rendered as a caterer (abatement of 30% of the tax)

65. Photography Services:

Def: Section 65(79) of the Act defined a ‘photography studio or agency’ to mean

‘any professional photographer or a commercial concern engaged in the business

of rendering services relating to photography’.

66. Port services:

Def: Section 65(82) of the Act, defines ‘Port services’ as ‘any service rendered by

a port or other port or any person authorized by such port or other port, in any

manner, in relation to a vessel or goods’

67. Processing and clearing house service:

Def: Section 65(86d) of the Act defines ‘processing and clearing house’ as follows:

‘processing and clearing house’ means any person including the clearing

corporation authorized or assigned by a recognized stock exchange, recognized

association or a registered association to perform the duties and functions of a

clearing house in relation to-

(i) the periodical settlement of contracts for, or relating to, the sale or

purchase of securities, goods or forward contracts and differences

thereunder

(ii) the delivery of, and payment for, securities, goods or forward contracts

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(iii) any other matter incidental to, or connected with, securities, goods and

forward contracts

68. Programme Producer’s services:

Def: The term ‘programme producer’ has been defined under section 65(86b) of

the Act as follows: ‘Programme producer’ means any person who produces a

programme on behalf of another person.

69. Public relations management service:

Def: Section 65(86c) of the Act defines ‘public relations’ as follows:

‘public relations’ includes strategic counseling based on industry, media and

perception research, corporate image management, media relations, media training,

press release, press conference, financial public relations, brand support, brand

launch, retail support and promotions, events and communications and crisis

communications.

70. Rail Travel Agent’s services:

Def: Section 65(87) of the Act defines ‘Rail Travel Agent’ as follows:

‘Rail Travel Agent’ means any person engaged in providing any services

connected with booking of passage for travel by rail.

71. Real Estate Agent’s Services:

Def: Section 65(88) of the Act defines a real estate agent as follows:

‘Real estate agent’ means a person who is engaged in rendering any service in

relation to sale, purchase, leasing or renting, of real estate and includes a real estate

consultant.

72. Recovery agent’s services:

Introduction: The Government is deeply concerned about mounting non-recovery

of the loans granted by banks and financial institutions to various borrowers. A

number of measures have been taken by government to ensure speedy recovery of

loan to improve the financial health of banks and financial institutions. The banks

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and the financial institutions also appoint recovery agents to ensure speedy

recovery of loans. The recovery agents help in speedy recovery by taking measures

like constant follow up with the borrowers, physical possession of securities like

motor car and other vehicles etc.

73. Registrar to an issue’s services:

Def: Section 65(89c) of the Act defines a ‘registrar to an issue’ as follows:

‘Registrar to an issue’ means any person carrying on the activities in relation to an

issue including collecting application forms from investors, keeping a record of

applications and money received from investors or paid to the seller of securities,

assisting in determining the basis of allotment of securities, finalizing the list of

persons entitled to allotment of securities and processing and dispatching allotment

letters, refund orders or certificates and other related documents

74. Rent-a-Cab scheme operator’s services:

Def: Prior to its amendment by the Finance (No. 2) Act, 1998, Section 65(32) of

the Act defined a ‘rent-a-cab-scheme operator’ as follows:

“‘rent-a-cab-scheme operator’ means a person who is the holder of a licence under

the rent-a-cab-scheme, 1989 framed by the Central Government under the Motor

Vehicles Act, 1988”.

After amendment by the Finance (no. 2) Act, 1998, it is defines in section 65(76)

of the Act, as follows:

“‘rent-a-cab-scheme operator’ means any person engaged in the business of renting

of cabs”.

75. Renting of Immovable Property service:

Def: Clause (90a) of section 65 of the Act defines the words ‘renting of immovable

property’ as follows:

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‘Renting of immovable property’ includes renting, letting, leasing, licensing or

other similar arrangements of immovable property for use in the course of

furtherance of business or commerce but does not include

(i) renting of immovable property by a religious body or to a religious body

(ii) renting of immovable property to an educational body, imparting skill or

knowledge or lessons on any subject or field, other than a commercial

training or coaching centre

76. Sale of space or time for advertisement services:

Introduction: The Madras High Court in the case of Advertisement Club v. CBEC

[2002] 121 Taxman 287 explained the scope of advertising agency as follows: “In

the first place, let us first see where a person gets his advertisement flashed in the

press media or electronic media, can it be said to be a service. In our opinion, it

could certainly not be said to be service provided by the press media or electronic

media. There is nothing done expecting flashing a prepared advertisement by the

press media or for that matter electronic media. The decision as to how and in what

format the advertisement should be, how it should be projected, as what point of

time it should be flashed , in which areas it should be exhibited or the manner in

which it should be drafted and exhibited has got nothing to do with the press media

or electronic media. That would be the task of advertising agency.

77. Scientific or technical consultancy services:

Def: With effect from 16-5-2008 section 65(92) of the Act defines ‘scientific or

technical consultancy’ as follows:

“‘scientific or technical consultancy’ means any advice, consultancy, or scientific

or technical assistance, rendered in any manner, either directly or indirectly, by a

scientist or a technocrat, or any science or technology institution or organization, to

any person, in one or more disciplines of science or technology”.

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78. Security Agency’s services:

Def: The term ‘security agency’ is defined in section 65(94) as follows:

‘security agency’ means any person engaged in the business of rendering the

services relating to the security of any property, whether movable or immovable,

or any person, in any manner and includes the services of investigation, detection

or verification, of any fact or activity, whether of a personal nature or otherwise,

including the services of providing security personnel.

79. Share Transfer Agent’s Service:

Def: Section 65(95a) of the Act defines ‘share transfer agent’ as follows:

“Share transfer agent” means a person who maintains the record of holders of

securities and deals with all matters connected with the transfer or redemption of

securities or activities incidental thereto.

80. Ship Management services:

Def: Section 65(96a) of the Act defines ‘ship management service’ as follows:

“Ship management service” includes:

(i) the supervision of the maintenance, survey and repair of ship

(ii) engagement or providing of crews

(iii) receiving the hire or freight charges on behalf of the owner

(iv) arrangements for loading and unloading

(v) providing for victualling or storing of ship

(vi) negotiating contracts for bunker fuel and lubricating oil

(vii) payment on behalf of the owner, of expenses incurred in providing

services or in relation to the management of ship

(viii) the entry of ship in a protection or indemnity association

(ix) dealing with insurance, salvage and other claims and

(x) arranging of insurance in relation to ship

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81. Site Formation and clearance, excavation and earth moving and

demolition service:

Def: Section 65(97a) of the Act reads as follows:

“Site formation and clearance, excavation and earth moving and demolition”

includes –

(i) drilling, boring and core extraction services for construction,

geophysical, geological or similar purposes or

(ii) soil stabilization or

(iii) horizontal drilling for the passage of cables or drain pipes or

(iv) land reclamation work or

(v) contaminated top soil stripping work or

(vi) demolition and wrecking of building, structure or road

But does not include such services provided in relation to agriculture, irrigation,

watershed development and drilling, digging, repairing, renovating or restoring

of water sources or water bodies.

82. Sound recording services:

Def: Section 65(99) defines a sound recording studio or agency as follows:

“Sound recording studio or agency” means any person engaged in the business of

rendering any service relating to sound recording.

83. Sponsorship Services:

Def: Section 65(99a) of the Act defines sponsorship as follows:

“sponsorship” includes naming an event after the sponsor, displaying the sponsor’s

company logo or trading name, giving the sponsor exclusive or priority booking

rights, sponsoring prizes or trophies for competition; but does not include any

financial or other support in the form of donations or gifts, given by the donors

subject to the condition that the service provider is under no obligation to provide

anything in return to such donors.

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84. Steamer Agent’s services:

Def: Section 65(100) of the Act defines a ‘steamer agent’ as follows:

“Steamer Agent” means any person who undertakes, either directly or indirectly

(i) to perform any service in connection with the ship’s husbandry or

dispatch including the rendering of administrative work related thereto

(ii) to book, advertise or canvas for cargo for or on behalf of a shipping line

(iii) to provide container feeder service for or on behalf of a shipping line

85. Stock-Broker services:

Def: Section 65(101) of the Act initially defined a ‘stock-broker’ as follows:

“Stock broker” means a stock-broker who has either made an application for

registration or is registered as a stock-broker in accordance with the rules and

regulations made under the Securities and Exchange Board of India Act, 1992

86. Stock Exchange Service:

Introduction: The Stock Exchanges like NSE/BSE provide electronic platform and

other relate services to facilitate and carry on trading in shares, stocks, debentures,

bonds and commodity, etc and to initiate, facilitate, promote, assist, undertake

manage all activities in relation to trading in securities, other instruments and

commodities. The finance Act, 2008 has brought these services into the tax net as a

separate service.

87. Storage and warehousing service:

Def: section 65(102) of the Act defines ‘Storage and warehousing’ as under –

“Storage and warehousing” includes storage and warehousing services for goods

including liquids and gases but does not include any services provided for storage

of agricultural produce or any service provided by a cold storage.

88. Supply of tangible goods service:

Introduction: Generally right to use goods is given along with transfer of

possession and effective control. In most of the States, VAT is charged on the

38

amount received by the person permitting right to use the goods where the

possession and control is transferred. Generally, when the machinery or the

equipment is of high technical nature and operation of the same requires special

skill and experience for the same, possession and effective control of such

machinery or equipment is not transferred to the user. The equipment is supplied

along with the operator. The owner intends to ensure that the equipment is safely

used and the user intends to ensure that the equipment become useful for the

intended purpose. If the person operating does not have the knowledge of the

operation he may damage the equipment. The owner no doubt receives monetary

consideration for such supply. The Finance Act, 2008 has inserted the captioned

service as a separate service.

89. Survey and exploration of mineral, oil and gas service:

Def: The definition given in section 65(104a) is as follows:

“Survey and exploration of mineral” means geological, geophysical or other

prospecting, surface or sub-surface surveying or map making service, in relation to

location or exploration of deposits of mineral, oil or gas.

90. Survey and map-making service:

Def: Clause (104a) of section 65 defines ‘survey and map-making’ to mean

geological, geophysical or any other prospecting, surface, sub-surface or aerial

surveying or map making of any kind, but does not include survey and exploration

of mineral.

91. Technical Inspection and Certification Service:

Def: With effect from the term ‘Technical Inspection and Certification’ is defined

in section 65(108) of the Act as follows:

“Technical Inspection and Certification” means inspection or examination of goods

or process or material or information technology software or any immovable

property to certify that such goods or process or material or information

39

technology software or immovable property qualifies or maintains the specified

standards, including functionality or utility or quality or safety or any other

characteristics or parameters, but does not include any service in relation to

inspection and certification of pollution levels.

92. Technical Testing and Analysis Service:

Def: With effect from 16-5-2008 section 65(106) defines ‘technical testing and

analysis’ as follows:

‘technical testing and analysis’ means any service in relation to physical, chemical,

biological or any other scientific testing or analysis of goods or material or

information technology software or any immovable property, but does not include

any testing or analysis service provided in relation to human beings or animals.

93. Telecommunication service:

Def: Clause (109a) of section 65 of the Act, inserted by the finance Act, 2007

defines the term “Telecommunication service” as follows:

‘Telecommunication service’ means service of any description provided my means

of any transmission, emission or reception of sign, signals, writing, images and

sounds or intelligence or information of any nature, by wire, radio, optical, visual

or other electromagnetic means or systems, including the related transfer or

assignment of the right to use capacity for such transmission, emission or reception

by a person who has been granted a licence under the first proviso to sub-

section(1) of section 4 of the Indian Telegraph Act, 1885.

94. Tour Operator’s Service:

Def: Section 65(115) of the Act as amended by the finance Act, 2004 defined the

words ‘tour operator’ as follows:

‘Tour operator’ means any person engaged in the business of planning, scheduling,

organizing or arranging tours by any mode of transport, and includes any person

40

engaged in the business of operating tours in a tourist vehicle covered by a permit

granted under the motor vehicles act, 1988 or the rules made thereunder.

95. Transport of Goods by Air Service:

Introduction: There are provisions relating to levy of service tax on goods

transported by air. Service tax is payable by an aircraft operator in relation to

transport of goods by aircraft.

The expression ‘aircraft operator’ is defined in section 65(3b) as follows:

‘Aircraft operator’ means any person which provides the service of transport of

goods by aircraft.

Under section 65(50) of the Act the word ‘goods’ has the meaning assigned to it in

clause (7) of section 2 of the sale of goods act, 1930. The said clause reads as

follows:

“Goods” means every kind of movable property other than actionable claims and

money; and includes stock and shares, growing crops, grass, and things attached to

or forming part of the land which are agreed to be severed before sale or under

contract of sale

96. Transport of goods by road service:

Def: ‘Goods Transport agency’ means any person who provides service in relation

to transport of goods by road and issues consignment note, by whatever name

called.

Abatement:

75% abatement continued from 1-3-2008 without any conditions. Under this

notification, unconditional exemption from tax is provided on 75% of the gross

amount charged by the goods transport agency for providing the service.

97. Transport of goods in containers by rail service:

Introduction: The transportation of goods by road and by aircraft is already

subjected to tax. A beginning has been made to levy service tax on transport of

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goods by rail also. The import and export of our country has been increasing every

year by more than 20%. The transportation of goods by container is one of the

most convenient methods adopted by importer and exporter. The goods are carried

from Inland Container Depots (ICD’s) to port or from ports to ICD by rail. Service

tax is levied on such transportation of goods by rail.

Abatement in tax:

The service provider has been allowed 70% abatement of tax, and consequently,

the service provider has to pay on 30% on the value of taxable service.

98. Transport of goods, other than water, through pipeline or other conduit

service:

Introduction: India’s economic growth is critically dependent on the transport

infrastructure. Along with the traditional means of transportation viz.

transportation of goods by road, air, sea etc. transportation through pipelines has

been gaining importance. Its advantages are:

(a) Pipelines are the most energy efficient, cost effective, safe, flexible and

ecologically favourable system of transportation.

(b)Compared to other Inland transport modes, pipelines do not crowd our

highways and rivers and they produce negligible air pollution.

(c) Pipelines are more suitable for transportation of fluids such as petroleum, oil

products or for gases such as natural gas, steam etc

99. Transport of passengers embarking in India for international journey by

air service:

Def: The term ‘international journey’ has been defined in clause (56a) of section

65 as follows:

‘International journey’ in relation to a passenger, means his journey from any

customs airport on board any aircraft to a place outside India.

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100. Transport of persons embarking from port in India by cruise ship

service:

Introduction: In the present day of competition, every person is working very hard.

Therefore, various methods are devised to provide recreation and amusement to the

person. Enjoying the holidays in the cruise ship is one of the recent developments

in our country and has become very popular. The service tax is levied on transport

of persons in India in cruise ship.

101. Travel Agent’s service:

Def: Section 65(115a) defines the expression ‘travel agent’ as follows:

‘travel agent’ of means any person engaged in providing any service connected

with booking of passage for travel but does not include air travel agent and rail

travel agent.

102. Underwriter’s service:

Def: clause (116) of section 65 defines the term ‘underwriter’ as follows:

‘Underwriter’ has the meaning assigned to it in clause (f) of rule 2 of Securities

and exchange board of India rules, 1993. As per rule 2(f) of the Securities and

exchange board of India rules, 1993, an underwriter means a person who engages

in the business of underwriting of an issue of securities of a body corporate.

103. Video Production agency’s services:

Def: section 65(119) of the Act defines a video production agency as follows: ‘

“Video production agency” means any professional videographer or any

commercial concern engaged in the business of rendering services relating to

videotape production.

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104. Works Contract Service:

Def: The finance act, 2007 has sought to levy service tax for the first time on

certain specified works contracts. In the budget speech the Finance Minister

observed as follows:

“State Government levy a tax on the transfer of property in goods involved in the

execution of a works contract. The value of services in a works contract should

attract service tax. Hence I propose to levy service tax on services involved in the

execution of a works contract. However, I also propose an optional composition

scheme under which service tax will be levied at only 2 per cent of the total value

of the works contract”.

Note:

Rate of Service Tax for all the above services:

With effect from 11-5-2007 service tax is leviable at the rate of 12.36 %( 12% as

service tax, 0.24% as education cess and 0.12% as secondary and higher education

cess).

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Chapter-2

45

COMPANY PROFILE

ABOUT THE PHARMA INDUSTRY

The Pharmaceutical Industry plays a vital role in our society. The main intention of the pharmaceutical industry is that every man should have good health. Pharmaceutical products can be broadly classified as follows:(1) Intermediates(2) Bulk Drugs(3) Formulations

Intermediates are processed to obtain bulk drugs, which are the basic ingredients for all the pharmaceutical preparations. Pharmaceutical preparations in the physical form (such as tablets, capsules, injections, liquids etc...) are called formulations. They are basically derived by converting bulk drugs in the appropriate forms.

PHARMA- THE ASCENDING VALUE CHAINEnd-to-end vertical integration provides a significant competitive advantage:

Lowers costs

Increases reliability

Increases flexibility

Reduces timing for regulatory

AREAS

1. Discovery Research (R&D)

2. Process Chemistry

3. Active Pharmaceuticals

4. Analytical Development

5. Formulations Development

6. Formulations Manufacture & Regulatory Support

STRATEGIC BUSINESS UNITS (SBU)

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Each SBU is a separate profit center with single point accountability. The SBU’s are supported by a set of shared corporate services that include Finance, Human Resources, Corporate Communications, Strategic Planning, Intellectual Property Management, Business Process Enterprise and Information Technology. A corporate center plays the role of a role a ‘Strategic Controller’.

ABOUT DR. REDDY'SEstablished in 1984, Dr. Reddy’s Laboratories (NYSE: RDY) is an

emerging global pharmaceutical company. As a fully integrated pharmaceutical company, our purpose is to provide affordable and innovative medicines through our three core businesses.

Pharmaceutical Services and Active Ingredients, comprising our Active Pharmaceuticals and Custom Pharmaceuticals businesses; Global Generics, which includes branded and unbranded generics; and Proprietary Products, which includes New Chemical Entities (NCEs), Differentiated Formulations, and Generic Biopharmaceuticals. Our products are marketed globally, with a focus on India, US, Europe and Russia. Dr. Reddy’s conducts NCE research in the areas of metabolic disorders, cardiovascular indications, anti-invectives and inflammation. Our strong portfolio of businesses, geographies and products gives us an edge in an increasingly competitive global market and allows us to provide affordable medication to people across the world, regardless of geographic and socio-economic barriers.

OUR PURPOSEWe are committed to providing Affordable and Innovative medicines for healthier lives.

Affordability: The high cost of many medicines puts them out of the reach of millions of people who desperately need them. As a global pharmaceutical company, we take very seriously our responsibility to help alleviate the burden of disease on individuals and on the world. Through our Global Generics business, we provide high quality, lower-cost alternatives to innovator drugs. Our wide range of generic medicines brings hope and health to people around the globe. Innovation: Despite the great advances of medical science, there are still far too many diseases for which there are no cures or no satisfactory treatments. We believe that innovation – in research, processes and technologies – holds the key to finding solutions for unmet or inadequately met medical needs.

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Our Proprietary Products business is dedicated to discovering new or better treatments than currently exist. In addition, our Custom Pharmaceutical Services business works with Innovator companies and emerging biotech firms to accelerate the development of new molecules, while lowering research costs.

OUR LOGO

1985-2000:

Our Very first logo – Rx in a beaker

The origin of Rx can be traced to the ‘Eye of Horus’. A powerful ancient Egyptian symbol of protection that is also believed to bring good health.

“There used to be a time when I would dream with my eyes open. When I said I would innovate for the benefit of the poor in India. I am dreaming again. Dr. Reddy’s Laboratories will innovate again. Not just for India. For Mankind.”(Dr. Anji Reddy in the Founder’s Vision-“My Dream”: Annual Report 96-97)Giving voice to this spirit of innovation, we adopted the tagline:“Innovation for a healthier life”.

2001: Onwards

DR. REDDY’S(LIFE.RESEARCH.HOPE)

Our identity is a sunny abstract that can be interpreted as a person with outstretched arms. It expresses joy, warmth, vitality, and the boundless possibilities in the search for a healthier life. The form sums up our essential driving force in three words:

LIFE.RESEARCH.HOPE

OUR BUSINESSES

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Deep Understanding ...Partner of Choice

Humanity’s health needs are greater than any one company’s ability to solve them; yet we can work with others to bring new drugs quickly to the market and provide the building blocks of affordable medicines. Through our PSAI business, which comprises the Active Pharmaceutical Ingredients (API) and Custom Pharmaceutical Services (CPS) businesses, we offer IP advantaged, speedy product development and cost-effective manufacturing services to our customers – generic companies and innovators. This allows us to help make good medicines available to more people around the world.

The core strengths of our PSAI business are the state-of-the-art infrastructure, resources and skills we are able to offer to our customers:

1. Large and diverse product portfolio2. Eight FDA-inspected plants and three technology centers 3. World class chemistry expertise4. Robust, large-scale manufacturing capabilities5. Intellectual Property (IP) driven product development for freedom to operate6. Total, seamless supply chain management

CAPABILITIESBuilding Capabilities Exceeding Expectations: Deep Manufacturing Expertise

We have 16 world-class manufacturing facilities of which 9 have a long history of regular USFDA inspections. With an annual capacity of nine billion tablets/ capsules a year, dedicated to servicing the more regulated markets, one of our finished dosages facilities is among the largest in Asia. Our facilities are designed to respond to a wide range of technologies - oral solids, injectibles, topicals, inhalers, cytotoxic, hormonals and other dosage forms. Likewise our API facilities offer lean manufacturing, adhere to stringent regulatory guidelines and continually drive cost competitiveness. Such manufacturing capabilities and our inherent expertise to navigate intellectual property road blocks make us a preferred partner for some of the world’s leading pharmaceutical companies.

Globally Synchronized Supply Chain

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We put the needs of our partners and customers first. Our globally synchronized supply chain and a comprehensive Information technology platform help us assure customers of timely delivery and superior inventory turns. The uninterrupted success of our customers’ business is our promise.

Regulatory PerformanceOver the years we have built an expertise in understanding the regulatory

frameworks of the various countries in which we operate. This has given us a distinctive edge, for ourselves and our customers. We have built a successful track record of timely and extensive approvals. As an example, we are among the leaders in terms of DMFs and ANDAs in the US itself, with more than half of these being Para IV possibilities.

Quality & Product ResponsibilityAt Dr Reddy’s, we strictly follow quality control and quality assurance

systems as specified by regulatory requirements in each of the geographies in which we operate. For us, product responsibility extends through the life cycle of the product -- from product development to manufacture to product release to post-launch. We comply with the internationally accepted International Conference on Harmonization (ICH) guidelines in product development and we have independent quality control and quality assurance teams to ensure multi-stage quality compliance. BOARD & MANAGEMENT

Board of Directors:Dr. Reddy’s Board of Directors comprises eminent individuals from diverse

fields. The Board acts with autonomy and independence in exercising strategic supervision, discharging its fiduciary responsibilities, and in ensuring that the management observes the highest standards of ethics, transparency and disclosure. Our directors are experts in the diverse fields of medicine, chemistry and medical research human resource development, business strategy, finance, and economics. They review all significant business decisions, including strategic and regulatory matters. Every member of the Board, including the non-executive directors, has full access to any information related to our company.

Committees appointed by the Board focus on specific areas, take decisions within the authority delegated to them and make specific recommendations to the Board on matters in their areas.

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Board of Directors of Dr. Reddy’s:1. Dr. K Anji Reddy (Chairman)2. Mr. G V Prasad (Vice Chairman & CEO)3. Mr.Satish Reddy (Managing Director & COO)4. Mr. Anupam Puri5. Dr. Bruce Carter6. Dr. J P Moreau7. Ms. Kalpana Morparia8. Dr. Omkar Goswami9. Mr. Ravi Bhoothalingam10. Dr. Ashok Ganguly

Committees of the board:Committees appointed by the Board focus on specific areas and take

informed decisions within the framework of delegated authority, and make specific recommendations to the Board on matters in their areas or purview. All decisions and recommendations of the committees are placed before the Board for information or for approval.

BOARD COMMITTEES:Audit Committee Members :Dr. Omkar Goswami (Chairman)Ms. Kalpana MorpariaMr. Ravi Bhoothalingam

Governance & Compensation Committee Members :Mr. Anupam Puri (Chairman) Dr. Bruce CarterDr. J P MoreauMs. Kalpana MorpariaDr. Omkar GoswamiMr. Ravi Bhoothalingam

Investment Committee Members:Mr.G.V.Prasad (Chairman) Mr.Satish ReddyMr. Ravi Bhoothalingam

Shareholders’ Grievance Committee Members:

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Mr. Ravi Bhoothalingam (Chairman) Mr.G.V.PrasadMr.Satish Reddy

PRODUCTS & SERVICES

Active pharmaceutical ingredients:

Dr. Reddy's offers an unparalleled portfolio to our customers, who include innovators and generic formulators worldwide. With a strong product portfolio of more than 140 products, including niches like oncology and hormones, and our “first in, last out” approach, it is little wonder we are today the third ranked API player globally. Our goal is always to enable our customers to be the first to launch a generic product and to provide value added services to help them remain competitive and profitable for the entire life cycle of the product. We have built the capabilities to consistently deliver on this promise in scale and across the largest product range. A highly skilled global team focuses on timely delivery of products, product development, technology leadership, cost competitiveness, the highest levels of customer service, and full compliance with regulatory and quality requirements.

Our expertise in organic synthesis and process development complemented by a controlled supply chain enables us to provide our customers with high quality Bulk Actives at competitive prices. We are aggressively building our product portfolio to cater to generic players in the emerging markets and generic and patent challenge formulators in regulated markets.

Our operations capabilities are among our core strengths, with six USFDA approved plants in India, one in Mexico and our latest addition, a USFDA inspected plant in Mirfield, UK, having a total capacity of 3300KL.

Our API business is supported by our technologically advanced Product Development infrastructure, which identifies new products and is engaged every step of the way, from the conceptual stage to delivery of drugs to the market place. The Product Delivery Teams, the Centres of Excellence and IP teams help create value through Intellectual Property and proactive patenting; early development work on certain promising molecules; breakthrough product delivery; and by delivering cost leadership in API.

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All the above advantages make Dr. Reddy's API, an ideal partner in your product development efforts.

Product Development:

RegulatoryDr. Reddy's is committed to the manufacture of premium quality products in

compliance with all regulatory requirements and customer expectations. We operate in accordance with cGMP requirements and the USFDA and ICH guidelines & regulations. All our manufacturing facilities are successfully inspected for several products by the USFDA and various other Agencies.

We are aided by a Best-in-Class Regulatory Affairs Team and we support our customers with DMFs for their dosage form approvals / ANDA filings. We have filed several DMFs in US, Canada (PMFs), Europe, Turkey, Korea, CIS and many more in other parts of the world. Some of our products have also recieved the Certificate of Suitability (COS) from European Pharmacopoeia Our Customer support on Technical and Regulatory queries with constant focus on responsiveness, reliability, customization, and confidentiality set us apart from others. Continuous adaptation to the latest developments in global regulatory procedures and active partnership with Pharmacopoeial bodies give us cutting edge in this area.

Intellectual PropertyCompetent and well equipped Intellectual Property Management Cell of Dr.

Reddy’s facilitates the creation of intellectual wealth by navigating the Research and Development work and honoring others intellectual property. A team of well qualified IP experts comprising specialists from diverse fields of science are involved in evaluating techno-legal and techno-commercial aspects of the products, strategic product development, competitive IP generation and patenting, leveraging the intellectual property across the globe. This is a continuous process aimed at providing generic medicines at affordable prices to the mankind. IPM cell in Dr Reddy's also facilitates P-IV challenges leading to early generic launch of the products in the US market.

TRACK RECORD

2008: Acquisition of BASF facility at Shreveport, US.

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2008: Acquisition of Dow Pharma Small Molecules business associated with Dow’s Mirfield and Cambridge, UK Sites.2007: World’s first bio-similar monoclonal anti-body, Reditux (rituximab) launched.2007: fastest Indian Pharma Company to cross $1billion in annual revenue2006: First Manufacturing Company to be Sarbanes-Oxley certified2006: First authorized generic deal with multi-national pharma2006: Key acquisition betapharma (Germany)2005: Key acquisition “Falcon” (Mexico)2001: First to be listed on the New York Stock Exchange1997: First to out-licence and NCE to a multi-national pharma 1993: Discovery Research commenced

LATEST LAUNCHES

New Brands in the dental basket

Vantej: An advanced formula for treating sensitive teeth, available in the form of a toothpaste. Vantej contains calcium sodium phosphosilicate (novamin), which provides a coating on the tooth to give relief from dental hypersensitivity. Launched on January 6, 2009, Vantej has already become a Rs.50 lakh brand for us within 32 days of its launch.

Glizer: Glizer is a non-bleaching whitening toothpaste, which contains natural whitening ingredients Papain, Bromelain, and supported with oral hygiene ingredients of Neem, Miswak and fluoride. The product helps to maintain the natural whiteness of teeth. Glizer was launched on February 2, 2009, and though this is a new concept – as of now only FMCG brands are available in this market – there is a big need for such a product in market.

Caziq: This product is Triamcinolone acetonide 0.1% gel, which is used to provide relief from pain due to mouth ulcers. This will further strengthen out Oral ulcer care basket. Caziq was launched on February 9, 2009.

Financial Statements of Dr. Reddy’s Lab with reference to taxesBALANCE SHEET AS AT 31. MARCH. 2008

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As at31 march 08

As at 31 march 07

SOURCES OF FUNDSShareholders’ fundsShare capital 840,865 839,561Reserves and surplus 47,277,184 42,894,005

48,118,049 43,733,566Loan fundsSecured loans 34,022 19,225Unsecured loans 4,5890,52 3,279,794

4,623,074 3,299,019

Deferred tax liability, net 868,575 577,404

53,609,698 47,609,989APPLICATION OF FUNDSFixed assests and IntangebilesGross block 17,502,108 12,911,921Less: Accumulated depreciation and amortization

(7,627,956) (6,091,535)

Net block 9,874,152 6,820,386Capital Work-in-Progress(including capital advances)

2,457,106 2,806,081

12,331,258 9,626,467

Investments 19,306,197 8,302,126Current assets, loans and advancesInventories 6,409,343 4,875,126Sundry debtors 8,977,086 10,577,008Cash and bank balances 5,373,417 14,567,111Loans and advances 8,921,846 7,044,177

29,681,692 37,044,132Current liabilities and provisionsCurrent liabilities 6,808,568 6,334,275Provisions 900,881 1,028,461

7,709,449 7,362,736Net Current Assets 21,972,243 29,681,396

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53,609,698 47,609,989

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH 2008

For the year ended31 March 2008

For the year ended 31 March 2007

INCOMESales, gross 33,864,865 38,261,368Less: Excise duty on sales (558,308) (779,390)Sales, net 33,306,557 37,481,978License fees 215,832 1,744,737Service income 416,373 447,040Other income 13 1,911,313 1,169,293

35,850,075 40,843,048Expenditure

Material costs 12,534,602 11,215,910Conversion charges 558,264 1,132,043Excise duty 286,808 117,191

Personnel costs 686,203 2,797,652Operating and other expenses

7,869,051 7,177,926

Research and development expenses

3,308,709 3,282,514

Less: Amount reimbursed as per the research and development arrangements

(89,505) 3,219,204 (825,405) 2,457,109

Provision for decline in the value of long-term investments

133,171 472,069

Finance charges 101,883 479,682

Depreciation and amortization

1,619,862 1,335,009

30,009,048 27,184,591Profit before taxation 5,841,027 13,658,457Income tax expense 1,088,808 1,889,864

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Profit after taxation 4,752,219 11,768,593Balance in profit and loss account brought forward

13,051,316 3,278,210

Less: transitional liability recognized pursuant to adoption of accounting standard employee benefits

(81,702)

Transitional loss recognized pursuant to early adoption of Accounting standard “Financial Instruments: Recognition and Measurement”

(14,921) 13,036,395 3,196,508

Amount available for appropriation

17,788,614 14,965,101

Appropriations:Proposed dividend on equity shares

630,648 629,671

Tax on proposed dividend 107,179 107,013

Dividend of previous years 604 242

Transferred to General Reserve

475,222 1,176,859

Balance carried forward 16,574,961 13,051,31617,788,614 14,965,101

Earnings per shareBasic-par value Rs.5 per share

28.27 74.23

Diluted-par value Rs.5 per share

28.09 73.74

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Chapter-3

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OBJECTIVES

The main aim of undertaking this study is to accomplish the following

objectives:

To gain knowledge regarding the different types of services involved since

1994(As per the finance Act)

To understand the collections of service tax in a general method or if service

amount is not given

Proper understanding and analysis of concepts of service tax and its general

principles

To develop ability to analyze and interpret various tools of taxation with

reference to service tax.

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ANALYSIS

The objective of the study of this project can be clearly understood by learning the basic principles of service taxes, understanding the meaning of the services involved and by methodical calculations. Therefore the research can be done which is a systematic design. In involves collection of the data, analyzing it and relating the data with the present situations. The process of the present study consists of the following stages:

1. Understanding the objectives and define the objectives

Firstly understanding the aim of the project study is important which means basic objectives have to be figured out. Only after understanding the objectives it can be apprehended. This makes defining the objectives easier. Here the fundamental aspects of service taxes should be deciphered.

2. Developing the research plan

Once the problem is defined, the next step is to prepare a plan for getting the information needed for the project study. The present study will adopt exploratory approach where there is a need to gather a large amount of information before making a conclusion if required. The descriptive, interpreter and casual approaches may also be used. Out of which interpretation is the contented way.

3. Collection and Sources of Data:

To collect the data relevant information has to be collected and which is mandatory with respect to the project. As a result, data was collected by using two ways:

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Primary Data

Secondary Data.

Primary Data

In this the information is being possessed with first hand information, which is new and fresh. The tools used by me for the primary data are calculations which were done by using three methods i.e. regular method, back calculations and when service amount was not given. I also used keen observation.

Secondary data

The information that is received with the help of Journals, Magazines, Financial reports or which is already present with the company. I had referred to Tax Law books. I also gathered information through World Wide Web (www). Support and knowledge was very much provided by Faculty and Company guide.

4. Sampling Plan

A sampling plan basically consists of a sampling unit and a sample size. The goods and services upon which the taxes are levied have been classified. Here there is no sample size because service tax is not like income tax. In income tax, taxes are levied on people so it requires a sample size but in service tax, since taxes are levied on goods and services there the sample size is not taken. Hence sample size is zero.

5. Analyze the collected information:

This involves converting raw material in to useful information. It involves tabulation of data and using statistical measures on them for developing frequency distribution and calculating the taxes involving services. Here revised services are 104 services.

6. Report final findings:

This phase will mark the culmination of the project study efforts. First a rough draft is made which is rectified if any mistakes occur. After the corrections made a formal written or printed document as the case may be will be reported

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Chapter-4

62

INTERPRETATION OF DATA

How to calculate Service tax

1. General Method

You have to charge 12% on your service amount, that is called service tax.

After that you have to add Education CESS 2% on Service Tax amount

Again you have to add another 1% Additional CESS on Service Tax amount.

So total Service Tax will be = [12% +{(2+1)% on 12%}] = 12.36%.

For example, if you bill amount is Rs. 100/= only.

Then you have to add (100x12.36%) Rs. 12.36 with your bill amount as total

Service Tax. Now the total bill amount will be Rs. 112.36 (Rs. 100 + Rs. 12.36)

only.

2. Calculation of Service Tax by back calculations

The gross amount charged can be taken as inclusive of service tax and the ‘value’

and ‘service’ tax is to be calculated by back calculations.

For example, if Bill amount is Rs. 1,000 and service tax is not shown separately in

Invoice, the tax payable calculated by a simple mathematical formula is as follows

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Assessable Value = (Cum tax price)/(1 + rate of tax)

Assume that Assessable Value (AV) is equal to ‘Z’.

AV=1.000 Z

Duty @ 10.30%=0.1030 × Z

Sub-Total=1.1030 × Z

Now ,

1.1030 × Z=1,000

Hence, ‘Z'= 1,000/1.1030

i.e. Z=906.61

Thus, ‘Z’, i.e. Assessable Value is Rs 906.62 and service tax @ 10% will be Rs

90.66. Education cess @ 2% of service tax will be Rs 1.82. SAH education cess is

Rs 0.91. Thus, total tax will be Rs 93.39.

If Bill is of Rs 1,103.00 (Rs 1,000 plus service tax of 103.00) and customer pays

only Rs 1,000, the ‘value’ will be Rs 906.61 and tax payable will be Rs 93.39 by

making back calculations.

3. How to calculate Service Tax & rates. If Service Tax amount is not given as

a base, then it can be calculated as follows:

Suppose amount accrued for service provided: 100000

Service Tax thereon is : 100000*12.36/100 = 12360

In case the amount of service provided is inclusive in amount received, then

calculation of service tax is:

100000*100/112.36 = 88999.64

This mean the value of services provided is 88999.65

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And the service tax is 100000-88999.65 = 11000.35.

4) Number of Services utilized by Dr.Reddy’s Lab for the Past 11 Years

Year No. of Services

used

1997-1998 12

1998-1999 10

1999-2000 4

2000-2001 5

2001-2002 15

2002-2003 10

2003-2004 7

2004-2005 13

2005-2006 9

2006-2007 15

2007-2008 7

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Interpretation:

The above table represents the number of services utilized by Dr. Reddy’s

Laboratories since 1997 till 2008. It is clearly understood from the data that Dr.

Reddy’s used most of available services during the periods 2001-2002 and 2006-

2007 which is 14.42% of the revised 104 services and the services were least

during the year 1999-2000 which is 3.84% of the services available.

5) Total Number of Services made taxable in Dr.Reddy’s Lab for the Past 11 Years

Year Total No of

Services made

taxable

1997-1998 18

1998-1999 28

1999-2000 28

2000-2001 28

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2001-2002 43

2002-2003 53

2003-2004 60

2004-2005 73

2005-2006 82

2006-2007 97

2007-2008 104

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Interpretation:

Unlike Income Tax, Services Taxes are not levied on people but they are

levied on goods and services utilized. The graph shows the number of services

made taxable for the past 11 years. During 1997-1998, 18 services were made

taxable. Numbers of services made taxable have been increased since 1997 till

date. The services which were specifically exempted were goods transport agency,

transport of goods by rail in container, construction services etc. During 2007-

2008, 104 services have been made taxable which are the present revised total

services.

6) Number of Assessees in Dr.Reddy’s Lab for the Past 11 Years

Year No of Assessees

1997-1998 45991

1998-1999 90456

1999-2000 100000

2000-2001 132000

2001-2002 187577

2002-2003 232048

2003-2004 403850

2004-2005 775000

2005-2006 1000000

2006-2007 1500000

2007-2008 NA

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Interpretation:

From the given information, a graph with number of years on y-axis and

number of assessees on the x-axis. It has been understood that the number of

assessees have been increased over the years. But since 2007-2008 it has become

not applicable.

7) Service Tax Collections (Rs. In crores) for the Past 11 Years

Year Service Tax Collections (Rs. In crores)

1997-1998 1586

1998-1999 1957

1999-2000 2072

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2000-2001 2612

2001-2002 3200

2002-2003 4123

2003-2004 7750

2004-2005 14200

2005-2006 23000

2006-2007 34000

2007-2008 52000

Interpretation:

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Service Tax can be calculated basically in three ways. One way is by

considering service amount, educational cess and additional cess. The second way

is by back calculations and the third method is by service tax and rates if the

service amount is given. By considering these methods, the service tax collections

after calculations were found to be 1586 crores in 1998. From then onwards the

collections have been improved rapidly to an extent of 52000 crores in 2008.

Chapter-571

SUGGESTIONS

1. Cosmetic and plastic surgery services to be included in the list of services

chargeable to service tax.

2. Definition of "stock broker" to be amended to exclude sub-brokers.

3. Two of the taxable services, namely, "Transport of goods through road" and

"Commission paid to foreign agents" to be exempted from the levy of service tax,

if the exporter is liable to pay service tax on reverse charge basis. Thus, an exporter

will not be required to first pay the tax and later claim refund in respect of these

services. However, as the present cap of 10% on commission agency charges has

been retained, the exporter will have to pay service tax on the amount of

commission which is in excess of 10%.

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4. Legal advice, consultancy or assistance (other than appearance in courts)

provided by any entity (not being an individual) to be included in the list of

services chargeable to service tax.

5. Exemption from service tax to be provided to inter-bank purchase and sale of

foreign currency between scheduled banks.

CHALLENGES

There are certain challenges before the Service Tax Administration in

India.Service tax administration in India has before it multi-dimensional

challenges. Few of them are related to the very nature and growth of service sector

in the economy and others relate to procedural aspects of the service tax collection.

            The growth of service sector at higher rate offers opportunities as well as

challenges to bring under the tax net hitherto uncovered services. This offers

tremendous revenue potential to the Government. It is expected that in due course

Service Tax would reduce the tax burden on international trade (Customs duty) and

domestic manufacturing sector (Excise duty). So a planned growth of service tax

would be commensurate with the goals of economic liberalization and

globalization. This process requires levy of taxes on new services without

substantial rise in the rate or cost of collection.

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            The administration of service tax requires a separate comprehensive

legislation along with distinct administrative machinery exclusively devoted to the

collection of service tax. That alone would bring in greater clarity, streamlined

procedures, greater taxpayer assistance and a new tax culture of voluntary

compliance. The twin goal of revenue maximization introduction of the culture of

voluntary tax compliance also throw up major challenge before the service tax

administration in the country.

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