The Supreme Court has repeatedly given an exalted status to circulars issued by the Board (Central Board of Excise and Customs) by calling it binding on all subordinate offices and by endowing it with great weightage in judicial parlance. This casts a lot of responsibility on the Board to issue circulars without making loose statements. I am referring to the loose statement made by the Board’s circular No.943/04/2011-CX dated 29.4.2011 which at Sl. No.7 used the expression “Trading is an exempted service”. This expression that trade is an exempted service is fundamentally wrong because trade is not a service.
There is a definition of ‘exempted service’ in the Cenvat Rules, 2004. It is reproduced here: “Rule 2 (e) “exempted services” means taxable services which are exempt from the whole of the service tax leviable thereon, and includes services on which no service tax is leviable under section 66 of the Finance Act”. In order to fall in this definition, something has to be a service first. Section 66 levies service tax to the enumerated services only. This means that there are other services on which service tax is not leviable. Only this type of services are covered under the definition of “exempted service”. But those which are not service at all cannot be covered under the definition of exempted service. Trading not being a service at all cannot be called an exempted service.Now the question comes whether trading is a service. Trading is buying and selling of goods. If goods are bought and sold then sales tax is levied which is now value added tax (VAT). So, the taxable event for sales tax is the act of sale. The taxable event for service tax is the act of providing service. Therefore, the two taxable events being different, the taxes cannot be the same. To put it differently, the tax on trade is VAT and the tax on service is service tax. To call trade as service is conceptually wrong. Refer the landmark Supreme Court judgment on a Presidential reference in 1962 reported in 1963 AIR SC 1760 that “in one case (excise) the imposition is on the act of manufacture or production while in the other (sale tax) it is on the act of sale.”
Some controversy has been created only in marginal and overlapping cases where goods and service are delivered together. Examples are the service of food in a restaurant, printing of question paper, selling of news to agencies and so on. There are some Supreme Court judgments on this issue and what is common in all these judgments is that they have never equated sale with service but have tried to find out if it is sale or service mainly in cases where the two elements are delivered together. No judgment has said that service tax can be charged when it is a sale.
In this connection it may be taken into account that in the CSO National Accounts Statistics, trade (sale of goods) is classified under the tertiary sector since it cannot be classified under the primary or secondary sectors. But merely being in the tertiary sector does not make it a service. When the CSO gives the list of potentially taxable services, it does not mention trade. In the WTO classification of service sectors also trade has not been included. What have been included are wholesale services and retailing services along with commission agents’ services and services relating to manufacturing. Here the item refers to service relating to trade such as internet delivery. It refers to “distribution service” and not “sale” as such.
The conclusion is that there is a clear distinction between trade (sale) and service. All judgments have distinguished them though there may be some cases of marginal nature where service and goods are delivered together. The crux of the distinction is that in case of sale, the goods exist as property of the seller before these are handed over to the buyer but in case of service the goods emerge by way of or in course of rendering the service.
CAclubindia
