Service tax Q & A

Q1 Whether charging rent for displaying advertisement falls under advertising

     services?

Ans. No. The CESTAT in its judgment in the case of CCE v. Azad Publications

[2007] 8 STT 242 (Delhi - CESTAT) held that permitting display of  

advertisement on its site and raising bills for realizing rental charge is  

mere sub-letting to an advertising agency without providing services of

the nature defined for advertising services and, hence, the activity of the

respondent will not bring it under the definition of ‘advertising agency’.

Q2 Whether technical know-how generated for internal consumption sold out

     later falls under consulting engineer services?

Ans. No. In the case of Aksh Optifibers Ltd. v. CCE [2009] 21 STT 252 (New

Delhi - CESTAT), the appellants had developed certain technical know-how for themselves for the purpose of providing e-governance and rural governance in India and had named the project Gramdoot. Since the appellants could not implement the project themselves, they sold the technical know-how by agreement. It was held that since the agreement was for technology transfer and not for providing any technical know-how service and even the ownership of the technical know-how was transferred to the buyer, the demand of service tax was not sustainable.

Q3 Whether services provided by express cargo service transporters are

     different from courier agency services?

Ans. No. The Government in its Master Circular No. 96/7/2007, dated 23-8-2007

has clarified that “the nature of service provided by ‘Express Cargo Service’ provider falls within the scope and definition of courier agency”.

Q4. Whether fee collected by an institution falls under commercial training or

      coaching services?

Ans. No. In the case of Magnus Society v. CC&CE [2009] 18 STT 193 (Bang. –

CESTAT), the Tribunal held that education has a larger scope. Education may include coaching or training and not vice versa. Coaching or training is a very narrow activity, imparting skill in a particular discipline. But, education is a broader term, which is a process of development of personality of body, mind and intellect. Just because an institution collects fees from students, one cannot come to conclusion that it imparts commercial training or coaching. Institutions preparing students for entrance exams to universities are covered under commercial training or coaching services and not institutions offering degrees recognized by law.

Q5. Whether an organization formed for charitable purposes is liable for service

      tax?

Ans. Yes. The CESTAT in its judgment in the case of Punjab Ex-Servicemen

Corpn. v. CCE [2009] 18 STT 121 (New Delhi - CESTAT) held that an organization may be charitable organization established for some purpose, but may still engage in commercial activities, as without any commercial activities, the income required for charitable purpose cannot be generated. For levy of service tax it is the activity of an organization, which is relevant and not objective.

Q6. Whether the person manufacturing the sign boards falls under advertising

      services?

Ans. No. In the case of Star Neon Sign v. CCE [2007] 7 STT 223 (New Delhi –

CESTAT), it was held that the person who is only writing or preparing the sign boards at the behest of his customers cannot be called as advertising agency. There was no evidence on record to show that the relationship between the customers and the appellant was of advertising agent, which is

necessary for imposition of service tax.

Q7. Whether Wide Area Network (i.e., WAN) service falls under

      telecommunication services?

Ans. Yes. In the case of United Telecom Ltd. v. CST [2009] 18 STT 495 (Bang. –

CESTAT), the Tribunal held that the appellant was engaged in generation or usage of data and flow of information from different centers to head quarters and vice versa cannot be equated to on-line information and data retrieval. Supply of part of network service is covered under tele communication service.

Q8. Whether service rendered as a coordinator falls under clearing and

      forwarding agent services?

Ans. No. In the case of City Gold Metal (P.) Ltd. v. CCE & ST [2008] 12 STT 344

(Kol. - CESTAT), it was held that the assessee was involved as a coordinator without having control over the goods of the principal nor even he acted as an agent to deal with the same. The assessee’s job was to coordinate the execution of the order on behalf of the company to various steel plants, to attend the work regarding receipt of material, to ensure timely delivery and proper transportation at competitive price, to ensure proper loading and storage of material at the customer’s end to safeguard the material, etc. The Tribunal held that the above activities carried out by the assessee shall not be liable to be classified under clearing and forwarding agent services.

Q9 Whether renting of immovable property will fall under service tax regime?

Ans. The Hon’ble Delhi High Court in the case of Home Solution Retail India Ltd.

v. UOI [2009] 20 STT 129 held that renting of immovable property is not liable to service tax, but services in relation to renting of immovable property are taxable. Service tax being a value added tax, value addition is absent in renting of immovable property for use in the course or furtherance of business or commerce. If there is no value addition, then there is no tax. Any service connected with renting of immovable property such as air conditioning service provided along with renting of immovable property is taxable.

Q10. Whether convention services fall under mandap keeper service head?

Ans. Yes. The Government in its Circular No. B. 11/1/2001-TRU, dated 9-7-2001

has clarified that in some cases it may appear that convention service is same as the service rendered by a ‘mandap keeper’. There is a subtle distinction between the type of events such as official, social or business function in the case of mandap keeper as opposed to formal meeting in the case of convention centre.

Q11. Whether packaging and bottling of liquor attracts service tax under

        packaging service?

Ans No. In the case of Maa Sharda Wine Traders v. UOI [2009] 22 STT 105

(MP), the Hon’ble High Court held that manufacturing process not only necessarily includes excisable goods, but also includes process incidental or ancillary to completion of manufactured products. Bottling of liquor is part of manufacturing process and, hence, packaging and bottling of liquor being

covered under manufacture, is not liable to service tax under packaging service.

Q12. Whether State Roadways Corporation is covered under tour operator

        services?

Ans. No. The Government in its Circular No. B43/10/97-TRU, dated 22-8-1997

has stated that State Roadways Corporation which plies passenger buses in the neighbouring States will not be covered by the levy of service tax; as they do not get tourist permit but operate on the strength of agreement between the concerned State authorities.