A PROJECT REPORTOnServices provided by temporary transfer of
copyright, services performed by performing artists, services by
way of collecting or providing news by an independent journalist in
exempt servicesIn the subject: Taxation
Submitted to University of MumbaiFor IVth semester of M.Com.BY
Name of student: Shamee Arun WalkeRoll No. 79Under the guidance of
Prof. Santosh Nadar2014 2015
DECLARATION BY THE STUDENT
I, Ms. Shamee Arun Walke student of M.Com. (Semester IVth)
Accountancy , Roll No. 79 hereby declare that the project for the
Subject Taxation titled, Services provided by temporary transfer of
copyright, services performed by performing artists, services by
way of collecting or providing news by an independent journalist in
exempt services submitted by me to University of Mumbai,
examination during the academic year 2014-2015, is based on actual
work carried by me under the guidance and supervision of Prof.
Santosh Nadar.
I further state that this work is original and not submitted
anywhere else for any examination.
Name : Shamee Arun WalkeSignature of student
__________________
CERTIFICATEThis is to certify that the project entitled Services
provided by temporary transfer of copyright, services performed by
performing artists, services by way of collecting or providing news
by an independent journalist in exempt services submitted by Ms.
Shamee Arun Walke Roll No. 79 student of M.Com. Accountancy
(University of Mumbai) (IVth Semester) examination has not been
submitted for any other examination and does not form a part of any
other course undergone by the candidate. It is further certified
that s he has completed all required phases of the project. This
project is original to the best of our knowledge and has been
accepted for Internal Assessment.
Internal Examiner External Examiner
Co-ordinator PrincipalCollege seal
ACKNOWLEDGEMENTAt the beginning, I would like to thank GOD for
his shower of blessing. The desire of completing this project was
given by my guide Prof. Santosh Nadar. I am very much thankful to
him for the guidance, support and for sparing her precious time
from a busy schedule.I would fail in my duty if I dont thank my
parents who are pillars of my life. Finally I would express my
gratitude to all those who directly and indirectly helped me in
completing this project.
Shamee Arun Walke
INDEXSRCONTENTSPAGE NO
IMAIN PAGE
IiDECLARATION
IiiCERTIFICATE
IvACKNOWLEDGEMENT
1Chapter 1: Introduction to taxObjective of the studyScope of
the studyLimitations of the study
2Chapter 2: Service Tax
3Chapter 3: Services provided by temporary transfer of
copyright, services performed by performing artists, services by
way of collecting or providing news by an independent journalist in
exempt services.
5Chapter 5FindingsRecommendationsConclusions
6.Bibliography
Chapter 1: IntroductionA tax (from the Latin taxo; "rate") is a
financial charge or other levy imposed upon a taxpayer (an
individual or legal entity) by a state or the functional equivalent
of a state such that failure to pay, or evasion of or resistance to
collection, is punishable by law. Taxes are also imposed by many
administrative divisions. Taxes consist of direct or indirect taxes
and may be paid in money or as its labour equivalent.OverviewThe
legal definition and the economic definition of taxes differ in
that economists do not consider many transfers to governments to be
taxes. For example, some transfers to the public sector are
comparable to prices. Examples include tuition at public
universities and fees for utilities provided by local governments.
Governments also obtain resources by creating money (e.g., printing
bills and minting coins), through voluntary gifts (e.g.,
contributions to public universities and museums), by imposing
penalties (e.g., traffic fines), by borrowing, and by confiscating
wealth. From the view of economists, a tax is a non-penal, yet
compulsory transfer of resources from the private to the public
sector levied on a basis of predetermined criteria and without
reference to specific benefit received.In modern taxation systems,
taxes are levied in money; but, in-kind and corve taxation is
characteristic of traditional or pre-capitalist states and their
functional equivalents. The method of taxation and the government
expenditure of taxes raised are often highly debated in politics
and economics. Tax collection is performed by a government agency
such as the Canada Revenue Agency, the Internal Revenue Service
(IRS) in the United States, or Her Majesty's Revenue and Customs
(HMRC) in the United Kingdom. When taxes are not fully paid, civil
penalties (such as fines or forfeiture) or criminal penalties (such
as incarceration) may be imposed on the non-paying entity or
individual.PurposeThe main purpose of taxation is to accumulate
funds for the functioning of the government machineries. No
government in the world can run its administrative office without
funds and it has no such system incorporated in itself to generate
profit from its functioning.In other words, a government can run
its administrative set up only through public funding which is
collected in the form of tax. Therefore, it can be well understood
that the purpose of taxation is very simple and obvious for proper
functioning of a state. Taxes are charges levied against a
citizen's personal income or on property or for some specified
activity.Further, the other important purposes of taxation are as
follows - Increase in effectiveness and productivity of the nation
Increase in the quantum of revenue collection Improvement in
services of the government Improve employment at all industry
verticals Induction of modern technology in to the system
Rationalization of terms and condition of the economic system
Rationalization of employment terms and conditions
Objectives of TaxTax is permanent instrument for collecting
revenues. It is a major source of revenue in the developed world
and has been appearing as an important source of revenue in the
developing world as well. It has been an instrument of social and
economic policy for the government. The main objectives of tax are
as follows:1. Raise More RevenueThe fundamental objective of
taxation is to finance government expenditure. The government
requires carrying out various development and welfare activities in
the country. For this, it needs a huge amount of funds. The
government collects funds by imposing taxes. So, raising more and
more revenues has been an important objective of tax.2. Prevent
Concentration of Wealth in A Few HandsTax is imposed on persons
according to their income level. High earners are imposed on high
tax through progressive tax system. This prevents wealth being
concentrated in a few hands of the rich. So, narrowing the gap
between rich and poor is another objective of tax.3. Redistribute
Wealth for Common GoodTax collected by the government is expended
for carrying out various welfare activities. In this way, the
wealth of the rich is redistributed to the whole community.4. Boost
up The EconomyTax serves as an instrument for promoting economic
growth, stability and efficiency. The government controls or
expands the economic activities of the country by providing various
concessions, rebates and other facilities. The effective tax system
can boost up the economy. Similarly, taxes can correct for
externalities and other forms of market failure (such as monopoly).
Import taxes may control imports and therefore help the country's
international balance of payments and protect industries from
overseas competition.5. Reduce UnemploymentThe government can
reduce the unemployment problem in the country by promoting various
employment generating activities. Industries established in remote
parts or industries providing more employment are given more
facilities. As a result, the unemployment problem can be reduced to
a great extent through liberal tax policy.6. Remove Regional
DisparitiesRegional disparity has been a chronic problem to the
developing countries. Tax is one of the ways through which regional
disparities can be minimized. The government provides tax
exemptions or concessions for industries established or activities
carried out in backward areas. This will help increase economic
activities in those areas and ultimately regional disparity reduces
to minimum.
Importance of taxFor the worldwide operation of firms, taxation
plays a vital role. Taxation has become the core of various
financing decisions which includes international investment
decisions, international working capital decisions, fund raising
decisions andthe decisionsrelated to dividend and other payments.
The tax decision is also relevant in domestic firms also.The
managing of taxation is an extremely difficult issue for the
international corporations. The various reasons are given as
follows: The firms are supposed to work in several tax jurisdiction
or authorities where thetax ratesare diverse and also the
administration of the tax system is not uniform. The ultimate load
of tax in the framework of international firms is determined by
means of a more complex interaction of varying descriptions of the
tax base. The difference in tax treatment in different nations will
direct to distortions in worldwide trade and investment. The
companies which are situated in the low-tax country can have a
periphery over other firms in worldwide market. There are
possibilities to divert the investment to those countries that have
low cost rates. The overlapping takes place between the
international firms with different tax jurisdictions, utilise the
arbitrage opportunities and retain an edge over the domestic
firms.The bases of international tax system are: Tax neutrality-
The neutrality of international tax system is important because it
must not affect the economic efficiency. If the tax is neutral then
it will not influence the locality of the investment or nationality
of theinvestor. The capital can shift from a nation with lesser
return to a nation with higher return. Therefore, resources will be
allocated well, and the gross world output in turn will be high.
Tax equity- The principle of tax equity states that all equally
positioned tax players contribute in the cost of operating the
government according to the equal rules. The idea of equity can be
understood in two ways. The first one states that the input of each
tax player must be consistent with the amount of public services as
received. The second idea is that the contribution of each tax
player must be in terms of their ability to pay. The ability to pay
means the one with greater ability is likely to pay a larger amount
of tax. Avoidance of double taxation- The avoidance of double
income states that one must not be taxed twice for the same income.
However, if the post-tax income is sent to the foreign countries
then in that case the receiver of such income is taxed again. This
implies the same income is subjected to double taxation. As an
alternative, the requirements of foreign tax credits may be formed
in the domestic tax system.There also exist some tax laws which
prevent the tax through artificial transactions such as transfer
pricing. In addition,the corporatestructures will help to reduce
the overall tax burden to the enterprise.
Objective of the StudyThe objectives of the resent study is as
follows- To study about taxation in India. To study about service
tax. To study about services provided by temporary transfer of
copyright, services performed by performing artists, services by
way of collecting or providing news by an independent journalist in
exempt services
Scope of StudyThe scope of the study is limited to Services
provided by temporary transfer of copyright, services performed by
performing artists, services by way of collecting or providing news
by an independent journalist in exempt services.
Limitation of Study The time period of the study was not
sufficient to get more information regarding project . Lack of
accurate, centralized and statewide information
CHAPTER 2: SERVICE TAXIndia being a developing economy and a
welfare state, and it has been striving hard to maintain the level
of growth and meet the requirements of its citizens. The major
hurdle in its path is the limited amount of revenue/resources
available.Two major sources of revenue for Indian government are
customs duty and Central Excise duty on the goods
manufactured/produced in India. Revenue receipts from custom duty
and Central Excise duty have been decreasing in the past years due
to world trade commitments and rationalisation of commodity
duties.On the other hand, service sector has been growing
phenomenally all over the world (especially in India). This
tertiary sector(service sector) has grown at an unimaginable pace
due to cheap labour available in India.Businesses in the West are
being outsourced to the East . The contribution made by service
sector to GDP can now be compared to the contribution made by
agriculture and manufacturing sectors.So, the government decided
tap in on additional revenues by imposing Service Tax in
India.Genesis of service tax in India.The imposition of service tax
in India started after the report of Chelliah committee on tax
reforms.Based on this report, the Finance Minister of India (Dr
Manmohan Singh , 1994-95) introduced the concept of tax on
services. The concept of service tax in India widened with every
successive Finance Minister, India has embraced a new system of
taxation of all services by introduction of a negative
list.Constitutional authority Of Service Tax in India .Article 265
of the Constitution of India prohibits arbitrary collection of tax.
It states.No tax shall be levied or collected, except by the
authority of law this means that the government can impose taxes on
its citizens under (only under) the authority of the Constitution
of India.Schedule 7 of the Constitution of India has clearly
defined the matters on which central government and state
government can make laws. Schedule 7 of the Constitution of India
contains three lists.1). List 1: union list (it contains the
matters in respect of which only central government can make
laws).2). List 2: State list. It contains the matters in respect of
which only state government can make laws).3). List 3: concurrent
list (it contains the matters in respect of which both Central
government and state governments have the power to make laws).Entry
92C of the union list of the Constitution of India enables the
Central government to levy service tax in India. Initially there
was no specific entry in the union list for levying service tax.
Service tax in India was levied by the Central government by
drawing power from entry 97 of the union list. Entry 97 is a
residue re-entry in list 1, which has been reproduced below:97-any
other matter, not enumerated in list 2 list 3, including any tax
not mentioned in either of those listsThis residue entry provides
wide powers to Central government in respect of taxation on the
subjects not mentioned in any of the lists. However, on the
recommendations of various committees, entry 92 C was introduced in
the schedule 7 in the union list by amendment in the Constitution
act 2003 with effect from 7 January 2004, which is specific to
service tax in India.AnalysisSo even after approximately 2 decades
of inception of service tax in India, there is no proper law to
govern it. Matters related to service tax in India are handled by
CBEC (Central board of Excise and Customs).Approaches to service
tax in India.For the past two decades, service tax in India was
levied under selective approach which means only selective services
were taxed. The government used to issue a list of services on
which service tax was to be paid by the person providing the
services.However, budget 2012 introduced a new concept of negative
list, under which all services are to be taxed, except for those
mentioned in the negative list. This approach is known as
comprehensive approach.Administration of service tax in
India.Service tax in India is administered in the following manner.
The topmost authority for service tax in India is listed first.1
Ministry of Finance.2 Department of revenue.3 Central board of
Excise and Customs.4 Central Excise zones headed by Chief
Commissioners.5 Central Excise Commissionerates headed by
Commissioners.6 Service tax commissionerate.7 Additional
Commissioner.8 Joint Commissioner.9 Asst Commissioner/Deputy
Commissioner.10. Superintendent.11 Inspector.Extent, commencement
and application of service tax in India.Extent of service tax on
India: Service tax in India is levied on the entire country
(including territorial waters, continental shelf, exclusive
economic zones, airspace above Indian territory, etc ) except the
State of Jammu and Kashmir. Provisions of the Finance act 1994 do
not extend to the state of Jammu and Kashmir.This means that
aservice provided in the State of Jammu and Kashmir is not liable
to service tax.This is because article 370 of the Constitution of
India states that any act passed in the Parliament will apply to
the State of Jammu and Kashmir only after the State government has
given its consent. As per today, the State government of Jammu and
Kashmir has not given its consent for the applicability of service
tax in Jammu and Kashmir.However,services provided from Jammu and
Kashmir outside Jammu and Kashmir are still liable to service
tax.This means that if a person from Jammu and Kashmir provides a
service to another person who is not located in Jammu and Kashmir,
then the provision of service tax will be applicable. In simpler
words,location of the consumption of service is important.Nature of
Service Tax in IndiaIt must be noted that service tax is not a tax
on the service provider. In fact, it is a tax on service. The end
burden of service tax falls on the person receiving the services.
Service providers providing the services specified in the selective
list of services collect service tax from the person receiving the
services and the same is deposited with the government.Service
Taxis a tax imposed byGovernment of Indiaon services provided
inIndia. The service provider collects the tax and pays the same to
the government. It is charged on all services except the services
covered in the negative list (Section 66d of Finance Act 1994) of
services & services covered under Mega Exemption Notification
(Notification NO. 25/2012 ST dated 20.06.2012). The current rate is
14% on gross value of the service.[1]History of Service TaxDr.Raja
chelliah committee on tax reforms recommends the introduction of
service tax. Service tax had been first levied at a rate of five
per cent flat from 15 July 1994 till 13 May 2003, at the rate of
eight percent flat w.e.f 1 plus an education cess of 2% thereon
w.e.f 10 September 2004 le services provided by service providers.
The rate of service tax was enhanced to 12% by Finance Act, 2006
w.e.f 18.4.2006. Finance Act, 2007 has imposed a new secondary and
higher education cess of one percent on the service tax w.e.f
11.5.2007, increasing the total education cess to three percent and
a total levy of 12.36 percent. The revenue form the service tax to
theGovernment of Indiahave shown a steady rise since its inception
in 1994. The tax collections have grown substantially since 1994-95
i.e. from Rs. 410 crores in 1994-95 to Rs.132518 crores in 2012-13.
The total number of Taxable services also increased from 3 in 1994
to 119 in 2012. However, from 1 July 2012 the concept of taxation
on services was changed from a 'Selected service approach' to a
'Negative List regime'. This changed the taxation system of
services from tax on someSelected servicesto tax being levied on
the every service other than services mentioned inNegative
list.[2]
CollectionsThe collections under the Service tax from the year
of original levying year of 1994 are constantly growing. The
collections are shown as in the following table:Financial
YearRevenue Rupees(in crores)Number of servicesNumber of
Assessees
1994-199540733943
1995-199686264866
1996-19971059613982
1997-199815861845991
1998-1999195726107479
1999-2000212826115495
2000-2001261326122326
2001-2002330241187577
2002-2003412252232048
2003-2004789162403856
2004-20051420075774988
2005-20062305584846155
2006-20073759899940641
2007-2008513011001073075
2008-2009609411061204570
2009-2010584221091307286
2010-2011710161171372274
2011-2012975091191535570
2012-2013132518Negative List Regime1712617
Small Scale ExemptionService tax is only liable to be paid in
case the total value of the service provided during the financial
year is more than Rs. 10 Lakhs. If the value of services provided
during a financial year is less than 10 Lakhs, it is optional for
the service provider to pay service tax or not. But, in case he has
received the service tax from the service recipient, he would be
required to deposit it with the govt.This exemption is called Small
Scale Exemption and it is at the discretion of the service provider
whether he wants to avail this exemption or not.[4]Negative
ListBudget 2012 revamped the taxation provisions for services by
introducing a new system of taxation of services in India. In the
new system all services, except those specified in the negative
list, are subject to taxation. Earlier the levy of service tax was
based on positive list specified 119 taxable services.As per clause
(34) of section 65B of the Finance Act, 1994, the term "Negative
List" means the services which are listed in section 66D......
Service Tax Return, Records & InvoiceRecordsAccording to
Rule 5 of Service Tax Rules, 1994, records include computerized
data and means the record as maintained by an assessee in
accordance with the various laws in force from time to time.
Records maintained as such shall be acceptable to Central Excise
Officer. Every assessee is required to furnish to the Central
Excise Officer at the time of filing his return for the first time
a list of all accounts maintained by the assessee in relation to
Service Tax including memoranda received from his branch offices.
This intimation may be sent along with a covering letter while
filing the service tax return for the first time.Invoice Rule 4A
prescribes that taxable services shall be provided and input credit
shall be distributed only on the basis of a bill, invoice or
challan. Such bill, invoice or challan will also include documents
used by service providers of banking services (such as pay-in-slip,
debit credit advice etc.) and consignment note issued by goods
transport agencies. Rule 4B provides for issuance of a consignment
note to a customer by the service provider in respect of goods
transport booking services.
CHAPTER 3: Services provided by temporary transfer of copyright,
services performed by performing artists, services by way of
collecting or providing news by an independent journalist in exempt
services
1. Temporary transfer of copyright - Section 65(105)(zzzzt) of
FA, 1994 - taxability on film distribution - Imposition of Service
Tax upheld: Madras High CourtBy TIOL News ServiceCHENNAI, JULY 05,
2013:INa landmark judgement the Madras High Court upheld the
Service Tax on temporary transfer of copyright.Introduction -
Service Tax on Copyrights: Tracing the history of Service Tax on
copyrights, the High Court observed,When service tax was levied on
'Intellectual Property Services' namely trademarks, designs,
patents or any other similar intangible property, with effect from
10.9.2004, copyright was specifically excluded from the definition
of Intellectual Property Rights (IPRs). Copyright is nothing but
intellectual property right which explicitly remained outside the
scope of service tax just to encourage authors, artists, etc. The
Finance Act, 2010 has levied service tax on transferring
temporarily or permitting the use or enjoyment of any copyright
except the rights covered under section 13(1)(a) of the Copyright
Act, 1957.Services of copyright are taxable with effect from
1.7.2010. With effect from 1.7.2010, sub-clause (zzzzt) of clause
(105) of Section 65 defines the "Taxable Service" as:"Taxable
service" means any service provided or to be provided to any
person, by any other person, for -(a) transferring temporarily;
or(b) permitting the use or enjoyment of,Any copyright defined in
the Copyright Act, 1957, except the rights covered under sub-clause
(a) of clause (l) of Section 13 of the said Act."At the time of
introduction of Finance Bill, 2012, in his Speech, Finance Minister
stated that the Year 2012 is the Centenary Year of Indian Cinema
and proposed to exempt the Industry from service tax on Copyrights
relating to recording of Cinematograph films. The Finance Act, 2012
introduced Section 66B as the new Charging Section with effect from
1.7.2012 for the levy of service tax on all services other than
those services specified in the Negative list. Notification No.25
of 2012 provided for number of exemptions effective from 1.7.2012
and Entry No.15 of the said exemption is:"Temporary transfer or
permitting the use or enjoyment of a copyright covered under clause
(a) or (b) of sub-section (1) of Section 13 of the Indian Copyright
Act relating to original literary, dramatic, musical, artistic
works."Notification No .25 of 2012 was amended by Notification No.3
of 2013 w.e.f . 1.4.2013 and Entry No.9 in the notification
No.25/2012 is substituted as under :-"Services provided by way of
temporary transfer or permitting the use or enjoyment of
copyright(a) covered under clause (a) of sub-section (1) of Section
13 of the Copyright Act, 1957, relating to original literary,
dramatic, musical or artistic works; or(b) of cinematograph films
for exhibition in a cinema hall or cinema theatre."Thus the issue
relates to the temporary transfer or permitting the use or
enjoyment of copyright, except the rights covered under sub-clause
(a) of sub-section (1) of Section 13 of the Indian Copyright Act
for the period from 1.7.2010 to 31.06.2012 and the period from
01.4.2013 onwards since the levy of service tax on Copyright
Services (Section 65(105)(zzzzt) is revived from 1.4.2013 with the
exception of Section 13(1)(a) or Cinematograph films for exhibition
in a cinema hall or a cinema theatre.Writ Petitions and the
averments :-Contending that the levy of service tax on transfer of
copyright, which is goods, is transfer of right to use the goods
amounting to sale and no service element is involved and that
temporary transfer of copyright is not exigible to service tax,
writ petitions are filed challenging the vires of Section
65(105)(zzzzt) and to declare that the provisions of Section
65(105)(zzzzt) is beyond the legislative competence of the Union of
India.The following points arise for consideration in these Writ
Petitions :-1. Whether the taxable event provided under Section
65(105)(zzzzt) of the Finance Act, 1994 is covered by Article 366
(29A)(d), which is a "deemed sale of goods"?2. Whether the
Petitioners are right in contending that the levy of service tax on
"temporary transfer or permitting the use or enjoyment of
copyright" provided under Section 65(105)(zzzzt) of the Finance
Act, 1994 is covered under Entry 54 of List II and whether it
amounts to transgression by Parliament into the exclusive domain of
the State Legislature?3. Whether the Petitioners are right in
contending that the copyright is goods and transfer of copyright of
Cinematograph films is only delivery of goods for consideration and
is absolute transfer and no service element is involved?4. Even
assuming that there is an element of service involved in the nature
of transaction done by the Petitioners, should the dominant
intention of the transaction being transfer of goods has to be only
taken into consideration?5. Whether the Petitioners are right in
contending that Parliament has no authority to dissect a composite
transaction as in the case of the Petitioners and levy service
tax?6. Whether Section 65(105)(zzzzt) levying service tax on the
temporary transfer or permitting the use or enjoyment of copyright
is ultra vires the Constitution?The High Court heard elaborate
arguments and considered a plethora of Supreme Court judgements and
upheld the levy. Some of the contentions and rulings:Held:On a
careful analysis of the decisions of the Hon'ble Supreme Court, it
is seen that the Hon'ble Supreme Court on four occasions, upheld
the levy of service tax with reference to Entry 97 of List I and in
all the four cases, the Hon'ble Supreme Court held that the levy of
service tax falls within Entry 97 of List I. Therefore, any
challenge on this aspect by the petitioners must necessarily fail
.
Contention: Levy of service tax amounts to Double Taxation
:-Held: Film produced by the producer does not fetch any value
unless it passes through various commercial activities including
the distribution agreements and gets exhibited. As held by the
Supreme Court, 'service tax' is a "value added tax', which in turn,
is a 'general tax', which applies to all commercial activities
involving production of goods 'cinematograph films and provision of
services' from the stage of production - negative of the films are
made till it gets exhibited in theatre or exploited through other
media. Lot of economic/commercial activities are involved. Those
commercial activities amounting to temporary transfer of copyright
or permitting use or enjoyment of copyright, Parliament is well
within its competence to levy 'service tax'. 'Transfer of right to
use the goods' or 'permission to use the copyright' or 'enjoyment
of copyright' operate in different fields. There may be
overlapping. The impugned legislation cannot be held to be vitiated
merely because there is overlapping and that both sales tax and
service tax becomes leviable .Contention - No element of service is
involved :-Contention of Petitioners is that tax is leviable only
on services provided i.e. on the value addition and there is no
service or element of service in the act of temporary transfer or
permitting use or enjoyment of a copyright to another for his
business.Held: The legislative competence of the Parliament does
not depend upon whether any services are made available within the
definition of 'taxable services' contained in Finance Act, and in a
given case, 'taxable services' are rendered or not is a matter of
interpretation of the statute and for adjudication under the
provisions of the Statute and the same cannot affect the vires of
the legislation and/ or the legislative competence of the
Parliament. Therefore, the Supreme Court held that the levy of
service tax on a particular kind of service could not be struck
down on the ground that it does not conform to common understanding
of the word 'service' so long as it does not transgress any
specific restriction contained in the Constitution.Contention -
Computation is not possible:- Petitioners submitted that even
assuming that there is service element, Legislature has not
identified the nature of services and there is no mechanism in the
legislation to identify and quantify the taxes.Held: legislative
competence is to be determined with reference to the object of the
levy and not with reference to its incidence or machinery. The
substance of the impugned provision must be looked at to determine
whether it is in pith and substance within a particular entry,
whatever its ancillary effect may be. Basis of computation and
ultimate economic results cannot be a ground to challenge the vires
of the impugned provision.Conclusion:- The High Court held that:1.
The variant modes ofbusiness transactions between the producer and
distributor, distributor and sub-distributor or area distributor or
exhibitor (theatre owner) are not 'sale of goods' to fall under
Entry 54 List II or Entry 92A List I.2. By resorting to Entry 97 of
List I Residuary Entry to levy service tax, the Parliament is
within its legislative competence and Section 65(105)(zzzzt) is not
ultra vires the Constitution.3. From the production of the
cinematograph film till it is exhibited, there are host of
commercial activities. Service tax is the value added tax, which
applies to the business transactions for consideration involving
commercial activities. Over all, there is a huge rise in business
of film industry and huge money is involved. The temporary
transactions of copyrights or the permission to use or enjoyment of
the copyright cannot be brought either under Entry 54 of List II or
Entry 92A of List I.4. Applying the ratio of the decisions of the
Supreme Court, the Parliamentis well within its legislative
competence in levying service tax resorting to Entry 97 of List
I.
2. Services performed by performing artists-Guidelines for
Determining Worker StatusPerforming ArtistsThe following are
guidelines used by the Unemployment Insurance Division, the
Division of Labor Standards and the Division of Safety and Health
to establish whether the relationship between a performing artist
and the party engaging the services is an employment relationship
or that of an independent contractor.Independent contractors are
excluded from coverage under the Unemployment Insurance Law and are
not afforded the protections provided by Labor Standards and Safety
and Health requirements. These are persons who are actually in
business for themselves and hold themselves available to the
general public to perform services. A person is an independent
contractor only when free from control and direction in the
performance of services. All factors concerning the relationship
between the two parties must be taken into consideration to
determine if the party contracting for the services exercises, or
has the right to exercise supervision, direction or control over
the performer. No one single factor is controlling, nor do all
factors need to be present to establish the nature of the
relationship.For the purposes of these guidelines, the term
"performer" will include, but is not limited to, services performed
by a musician, singer, comedian, disc jockey, magician, karaoke
player or dancer. These guidelines address performers'
relationships with establishments, band or orchestra leaders,
theatrical and film productions or symphony organizations and
agencies. Refer to the section that applies to your type of
organization.Section 511.1(b)(1-a) of the Unemployment Insurance
Law includes in the definition of employment the services of
performing artists at certain establishments unless there is a
written contract stipulating them to be employees of someone else.
However, the courts and the Unemployment Insurance Appeal Board
have held that the statute creates a presumption of employment
which can be rebutted. Through application of common law tests of
supervision, direction and control, an employer may rebut the
presumption of employment and demonstrate that it was not the
entity engaging the services, or that the relationship with the
performer was that of an independent contractor.Employers may
request a formal determination of the status of individuals or
groups performing services for unemployment insurance purposes by
writing to the Liability and Determination Section and furnishing
complete details of the relationship. An employer who assumes an
individual performs services as an independent contractor and does
not report and pay contributions based upon the assumption, may
find they are subject to a retroactive assessment, interest, or
increased contribution rates, if it is later determined through an
audit, benefit claim or some other review, that there was an
employment relationship. Therefore, it is to the employer's
advantage to request a determination when the status of performers
is in question.
43
The Department of Labor is implementing these guidelines with an
effective date of January 1, 1998. Therefore, employers may
discontinue reporting individuals for unemployment insurance
purposes where the application of the guidelines results in a
status of independent contractor as of the first quarter of 1998.
Please note the prospective nature of the implementation. As a
result, the Unemployment Insurance Division will not issue
redeterminations and refunds for previously reported
individuals.Employers with questions regarding the interpretation
or application of the "indicators" outlined in the guidelines in
relation to an unemployment insurance matter may contact the
Liability and Determination Section at (518) 457-5807. Employers
with questions in relation to a Division of Labor Standards issue
should call (518) 457-4321. Division of Safety and Health issues
may be referred to (518) 457-1212.Establishments (such as
restaurant, tavern, night club, comedy club, fraternal
organization)Indicators of IndependenceThe strong indicators a
performer (or group) is an independent contractor when performing
services for an establishment are:1. The performers share in the
fee received from the establishment for services performed. 2. The
performer provides his own equipment for sound, lighting and stage
design. 3. The performer has an investment in equipment utilized in
the performance. 4. The performers are in business for themselves
as evidenced by operating as a corporation or joint venture. 5. The
performer retains the right to exercise artistic control over the
elements of the performance. 6. The performer sets or negotiates
the rate of pay received from the establishment. Other indicators a
performer (s) is an independent contractor when performing services
for an establishment are:7. The performer retains ultimate
authority in establishing the type of music for the performance. 8.
The performer dictates to the establishment the conditions of the
engagement, for example the stage set up, security arrangements,
transportation requirements, and food and beverage provisions. 9.
The featured performer provides services under a single engagement
arrangement. 10. The performer establishes when breaks will occur
or duration.
Indicators of EmploymentThe strong indicators a performer (or
group) is an employee when performing services for an establishment
are:1. The performer is paid at a rate determined solely by the
establishment. 2. The establishment makes standard withholding
deductions from the performer's fee, e.g. income tax, social
security, etc. 3. The performer is covered under the
establishment's Workers' Compensation Policy. Other indicators a
performer is an employee when performing services for an
establishment are:4. The establishment provides substitutes or
replacements when the performer is unable to participate at a
scheduled performance. Orchestra/Band LeadersIndicators of
IndependenceThe strong indicators a performer is an independent
contractor when performing services for an orchestra/band leader
are:1. The band/orchestra is in business for itself as evidenced by
operating as a corporation or joint venture and the performer is a
principal of the corporation or joint venture. 2. The
band/orchestra mutually agrees on the method of distributing profit
or loss. 3. The band/orchestra members jointly retain the right to
exercise artistic control over the elements of the performance.
4. The band/orchestra members jointly establish the music to be
played at the performance. 5. The band/orchestra members jointly
own, rent or lease equipment such as sound, lighting and stage
design. 6. A replacement, added or featured performer sets or
negotiates the rate of pay for a performance. Other indicators a
performer(s) is an independent contractor when performing services
for an orchestra/band leader are:7. The members of the
orchestra/band jointly dictate conditions of engagement such as
stage setup, security arrangements, transportation requirements,
and food and beverage provisions. 8. The musician provides his/her
own replacement if unable to participate at a scheduled
performance. 9.
Indicators of EmploymentThe strong indicators a performer is an
employee when performing services for an orchestra/band leader
are:1. The orchestra/band is in the name of the orchestra/band
leader and the leader contracts with the customer in the name of
the orchestra/band leader. 2. The orchestra/band leader pays the
musicians even if the customer fails to pay the band leader. 3. The
orchestra/band leader provides the substitute or replacement if a
performer is unable to participate at a scheduled performance. 4.
The performer is covered under the orchestra/band leader's Worker's
Compensation Policy. 5. The orchestra/band leader retains ultimate
right to exercise artistic control over the performance. 6. The
performer is paid to attend, or required to attend rehearsals. 7.
The orchestra/band leader makes standard withholdings from the
performer's fee, e.g. income tax, social security, etc.Other
indicators a performer is an employee of the orchestra/band leader
are:8. The performer is provided through a local union. 9. The
performer is provided with a music stand by the orchestra/band
leader. 10. The orchestra/band leader dictates the music to be
performed. 11. The orchestra/band leader dictates the attire to the
performer.12. The orchestra/band leader auditions the musician
(live or by tape) for the position. 13. The orchestra/band leader
establishes break times or length. 14. The orchestra/band leader
dictates conditions of engagement, for example stage setup, food
and beverage provisions. 15. The orchestra/band leader establishes
the fee paid to the performer16.
Theatrical and Film Productions and Symphony
OrganizationsIndicators of IndependenceIn most film and theatrical
production cases, performers would not be determined to be
independent contractors.The indicators a performer is an
independent contractor when performing services for a Symphony
Organization are:1. The performer or featured performer negotiates
the rate of pay. 2. The performer retains the right to exercise
artistic control over the performance. 3. The performer negotiates
or controls the conditions of the engagement, e.g. stage set up,
security, transportation, food, beverage, etc. 4. The featured
performer provides services under a single engagement arrangement.
Indicators of EmploymentThe strong indicators a performer is an
employee when performing services for a theatrical or film
production, or symphony organization are:1. The performer is paid
at a rate established solely by the production company or
organization. 2. The production company or organization makes
standard withholdings from the performer's pay, e.g. income tax,
social security, etc. 3. The performer is covered under the
production company or organization's Worker's Compensation policy.
4. The production company or organization retains artistic control
of the performance. 5. The performer is paid to attend, or is
required to attend rehearsals. Other indicators a performer is an
employee when performing services for a theatrical or film
production, or symphony organization are:6. The production company
or organization provides substitutes or replacements if the
performer is unable to provide services. 7. Attire is dictated by
the production company or organization. 8. The production company
or organization establishes breaks. 9. The performer is provided
with music or other materials for the performance.
AgenciesThese indicators are intended to assist in determining
if the agency is the employer. If the agency is not the employer,
consult the preceding sections of this guide as appropriate to
determine the identity of the employer or the status of the
performer as an independent contractor.Indicators of
IndependenceThe strong indicators a performer (or group) is not an
employee of the agent are:1. The client makes the final choice of
who the performer will be for the engagement. 2. The performer
negotiates the rate of pay with the client, or the performer
authorizes the agent to negotiate the rate of pay with the client
but retains the right of final approval. 3. There is no requirement
for the performer to report to the agent if services cannot be
performed. 4. The performer is well known, a recognized "name" who
is specifically sought by the client through the agent. Note: A
band operating as a joint venture and meeting other indicators of
independence as described in preceding sections will not be
considered employees of the agent unless the agent has control over
all aspects of the band, including artistic control over
performances.Other indicators a performer (or group) is not an
employee of the agent are:5. The performer or client has the
responsibility to provide or obtain a replacement. This would also
include situations where the client can request the agency to send
a replacement. 6. No reports are required to be filed with the
agent, or any reports required are filed directly with the client.
Indicators of EmploymentThe strong indicators the performer (or
group) is an employee of the agent are:1. The agent makes the final
choice of the performer who will perform the service. 2. The agent
negotiates and decides the rate of pay with the client and
negotiates and decides the performer's rate of pay. 3. The services
are exclusively performed for the agent, e.g. the performer cannot
work for other agents or for the agent's clients. 4. The agent
organizes the band and/or selects individual band members. Other
indicators the performer (or group) is an employee of the agent
are:5. The agent has responsibility to furnish a replacement. 6.
The performer must report to the agent if services cannot be
performed. The performer is paid even if the customer does not pay.
7. Reports must be filed with the agent, e.g. time sheets, record
of nature of services, etc.
3. Services by way of collecting or providing news by an
independent journalist[TO BE PUBLISHED IN THE GAZZETE OFINDIA,
EXTRAORDINARY, PART II, SECTION 3,SUB-SECTION (i)]Government of
IndiaMinistry of Finance(Department of Revenue)Notification
No.25/2012-Service TaxNew Delhi, the 20thJune, 2012G.S.R(E).- In
exercise of the powers conferred by sub-section (1) of section 93
of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as
the said Act) and in supersession of notification number 12/2012-
Service Tax, dated the 17thMarch, 2012, published in the Gazette of
India, Extraordinary, Part II, Section 3, Sub-section (i)videnumber
G.S.R. 210 (E), dated the 17thMarch, 2012,the Central Government,
being satisfied that it is necessary in the public interest so to
do, hereby exempts the following taxable servicesfrom the who le of
theservice taxleviablethereon under section 66B of the said Act,
namely-17.Services by way of collecting or providing news by an
independent journalist, Press Trust of India or United News of
India.
CHAPTER 4FNDINGS SUGGESTION & CONCLUSIONFindings &
Suggestions- 1. The rate of service tax was enhanced to12%by
Finance Act, 2006 w.e.f 18.4.2006. Finance Act, 2007 has imposed a
new secondary and higher education cess of one percent on the
service tax w.e.f 11.5.2007, increasing the total education cess to
three percent and a total levy of 12.36 percent.2. Current service
tax rate is 12%. On it, 2% education cess and 1% higher education
cess are added. So the effective service tax rate is 12.36% (12% +
3%). This is standard rate and it can be reduced as per available
abatement and exemptions.
Conclusion-Service tax is rightly referred to as Tax of the
future. Well synchronized taxation on manufacturing, trade and
service without giving rise to cascading effect of taxation would
be an ideal worth pursuing in the immediate future. This would
bring in VAT in its truest sense. Continued growth in GDP
accompanied by higher rate of growth in service sector promises new
and wider avenues of taxation to the Government. If the tax on
services reduces the degree of intensity of taxation on
manufacturing and trade without forcing the Government to
compromise on the revenue needs, then one of the basic objectives
of taxing the service sector would be achieved.Voluntary tax
compliance on the part of taxpayers demands prudent accounting
practices and transparency in the conduct of their business.
Marginal rates of taxation would be conducive in this process. Many
new services may be brought under the tax net in future. The
inclusion of all value added services in the tax net would yield
larger amount of revenue and make the existing tax structure more
elastic.Advanced economies of Western Europe, North America and Far
East have share of service sector in their GDP ranging from 60% to
80%. The growth in absolute quantum of GDP and proportion of
Service-sector in GDP holds promise for larger revenue generation
without increasing the existing level of taxation. However, the
progress so far has been slow. Moreover, the law in this regard is
not perfect and a separate legislation is keenly awaited.
BIBILOGRAPHY http://www.servicetax.gov.in
http://www.indiataxes.com
http://indiabudget.nic.in
http://www.laws4india.com
http://www.servicetax.com/cenvat1.htm