INDIVIDUAL SERVICES - 1,
PROFESSIONALS & CONSTRUCTION SERVICES
Madhukar
N Hiregange & Rajesh Kumar T.R.
FCA,
DISA(ICAI) ACA, LLB, DISA (ICAI)
In
this segment we examine the applicability of service tax
on management consultant, interior decorator, architect,
construction service, chartered accountant, cost accountant
and companies secretary and Construction Services in respect
of commercial or industrial building and civil structures.
We
have examined the coverage as service provider, services
liable, valuation aspects, exemptions available, credits
available, common issues in these sectors. We have not
made any effort to get into some of the possible contentions
and have restricted to those, which are common.
I.
Management Consultant
Date
of applicability: 16-10-1998
Service
provider: Any person who is engaged in providing any
service, either directly or indirectly, in connection
with the management of any organisation 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.
Service
providers who provide similar services to the management
consultant could also be covered as the service provider
is "any person". Further there is no reason
why a service provider cannot provide service under a
number of taxable categories.
The professional and others who maybe covered under this
category also are: Consulting Engineers, Scientific &
Technical Research Organisation, Practicing Chartered
Accountants / Cost accountants and Companies Secretaries,
Banking and other Financial, Manpower recruitment service
providers.
Excluded
service provider: Architects, Employees of management
consultants, CA's, Cost Accountants, Companies Secretaries
in the advisory field such of law and taxation.
Taxable
services: Any service provided to a client by a management
consultant in connection with the management of any organization,
in any manner.
The
departmental clarifications in this regard have examined
the meaning as set out by Indian Institute of Management
and International Labour organisation, which have both
provided a very wide definition.
Valuation:
Value of taxable service: The value of taxable service
would generally mean the `fees' charged by the management
consultant for providing service in connection with the
management of any organisation and at times may include
other charges also such as cost of brochures and leaflets
supplied by him, cost of preparing report, etc. However
if the same are goods as understood under sales tax, the
deduction for value of goods sold can be availed.
Sub
contractor: There is no specific exemption or clarification
in the circulars allowing the exemption. It is also in
the opinion of the paper writer advantageous to charge
the service tax as the service receiver would also be
able to avail the credit. It also makes a lot of practical
sense to have control and not have to run behind the customer.
Reimbursements:
Out of pocket expenses, which are separately reimbursed
by the client, will not be included provided documentary
evidence is provided to prove the same has been incurred
and is not directly related to the provision of service.
Exemptions
available:
-
Notification 16/2002: The services provided to the
United Nations or any International Organization is
exempt.
-
Notification 17/2002: The services to the developer
and the units of the Special Economic Zone are exempt
-
Notification 21/2003: The services provided for which
the payment is received in Convertible foreign currency
is also exempt provided that the same is not repatriated.
-
Notification 12/2003: General exemption to the value
of goods or materials sold along with a service.
Credits
available: Credit of input service, which falls in
the same category (within same category) of Management
Consultant service for which invoice or bill is issued
on or after 16-8-2002. All services credit from 14-5-2003
provided there is the payment of the value of input service
and service tax payable as indicated on the face of the
invoice or bill or challan is made. From 10-9-2004 onwards
credit of inputs and capital goods under provision of
the Cenvat Credit Rules can also be utilized for the payment
of service tax liability.
Resolved
issues:
-
In house workshops on better management of resources
and people: It has been clarified that in case the
employers provide the service themselves then there
is no levy of service tax. However, if the service
is provided by employing the service of an outsider
then the payment made by the said employer to such
Management consultant will be chargeable to service
tax.
-
Tax consultants and Law practitioners: Tax consultants
merely render consultancy and do not provide any service
in relation to the management of the organisation.
Hence excluded from the purview of `management consultant'.
In respect to law practitioners, it has been clarified
that ESI, PF and other industrial law practitioners
will not be covered by the scope of the term `management
consultant'.-Letter F.No.341/2/99 dated 20-8-1999.
-
Service provided in relation to merger or acquisition:
Any form of restructuring of business organization
required for efficient and effective functioning of
the organization falls under the cover of
the term `management'. Any advisory service rendered
in this regard will be taken under the definition
of `management consultancy' and will be taxable.[Circular
no 37B Order 1/1/2001 dated 27.6.2001]. However, services
provided with Merchant banker in connection with merger
or acquisition would not e covered under service tax
in this category as he plays only a statutory role
under any Act or regulation and do not provide any
advise or consultancy.[Circular no. B11/3/98 dated
7.10.1998].
Unresolved
issues:
II.
Interior Decorator
Date
of applicability:
16-10-1998 Service
provider: Any person engaged, whether directly or
indirectly, in the business of providing by way of advice,
consulting, technical assistance or in any other manner,
services related to planning, design or beautification
of space or space management would be covered., whether
man-made or otherwise and includes a landscape designer.
Therefore casual designers who charge a fee, individuals,
landscape designers, vastu consultants, and horticulture
consultants would be covered who provide any service in
these areas.
Excluded
Service provider: Civil contractors,
artists, painters, carpenters, persons furnishing the
premises, civil engineers.
Taxable
services: Any service provided to a client, by an
interior decorator in relation to planning, design or
beautification of spaces or space management, whether
manmade or otherwise, in any manner.
Excluded
services: Advise on setting up temporary structures
for films, ad films, events or conventions Circular no
B11/3/98 dated 7.10.1998.
Valuation:
Value of taxable service: Gross amount charged by
an interior decorator for services provided in relation
to planning, design or beautification of spaces or space
management, whether manmade or otherwise, in any manner.
Sub
contractor: Reimbursements: Exemptions available:
Credits available: As in the case of Management
Consultant above.
Resolved
issues:
-
In the case of materials consumed/ used (wood, furniture,
ornamental items including plants, partitions, false
roofing, air conditioners, fans etc) in the providing
of service under Interior Decoration Service, whether
the deduction for materials used in the same would
be liable? No, as per departmental clarification vide
Order no B11/3/98 dated 7.10.1998, service tax is
not leviable on furniture or decoration but on service
rendered in any manner, concerning planning, design
or beautification of spaces.
III.
Architect's Service
Date
of applicability: 16-10-1998 Service
provider:
Any person whose name is, for the time being,
entered in the register of architects maintained under
section 23 of the Architect 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.
Taxable
services Any service provided to a client, by an architect
in his professional capacity, in any manner. It also includes
any commercial concern providing the services of architecture.
The common services, which are liable under this category
include:
-
conceptualizing the city/ roads/ building / other
structures and spaces
-
designing the layout ( interiors & exteriors)
-
drawings the elevation ( views)
-
drawing of the structure, electrical, piping, etc.
-
feasibility study including the technical
-
obtaining the approvals, licenses, permits and plan
sanctions.
-
supervision of the construction work
-
advice on location, style and type of construction
Excluded
services: Services provided by architects such as:
-
Landscape designers and developers, engineers, contractors,
interior decorators.
-
Advice rendered by an architect on matters not connected
with the construction.
-
Construction contractor carrying on the job of construction.
-
Arranging finances for construction work.
-
Arranging for the eviction of the tenants, if any.
Valuation
: Value of taxable service: Gross amount charged by
an architect for providing any service in his professional
capacity.
Sub
contractor: Reimbursements: Exemptions available:
Credits available:
As in the case of Management Consultant above.
Resolved
issues :
-
Architects' be covered as `Consulting Engineers'
:
Architects
fall under a distinct or separate profession. Hence
the services provided by consulting engineers would
not cover the architectural services rendered by architects.
However, if separate break-up is given in the bill
for engineering services and architectural services,
then services tax needs to be paid only on the charges
for engineering services. [Trade Notice No.1/98-S.T.,DTD
5-1-1998]
-
Design charges for setting up of temporary stages/
set ups for shooting or movie/ advertisement:
The
design charges for temporary structures for shooting
or otherwise is also not a subject matter of ST as
per the TN. 7/98 dt 13.10.98 Mumbai Comm.
-
Architects providing interior decoration services:
Would
be liable under the category of Interior decorator
to the extent of taxable services provided.
-
Vasthu/Feng shui Consultants:
As
these consultants provide service in relation to planning
and designing of space, these consultants also fall
under the ambit of service tax.
IV.
Practicing Chartered Accountant/ Cost Accountant / Companies
Secretary
Date
of applicability: 16-10-1998
Service
provider: A person who is a member of the Institute
of Chartered Accountants of India and is holding a certificate
of practice granted under the
provision of the Chartered Accountants Act, 1949 (38 of
1949) and includes any concern engaged in rendering services
in the field of Chartered accountancy
Excluded
service provider: CA's in job, employees of practicing
firms not practicing in individual names, CA's in business
to other vocation, CA's providing exempted services
Taxable
services: Any service provided to a client, by a practicing
chartered accountant in his professional capacity, in
any manner. The main activities would be management consultancy
or manpower recruitment, accounting, audit and certification
services.
Excluded
services: Services provided by Chartered Accountants
in employment unless they are in part time practice. The
services other than those enumerated in the exemption
referred to above other than management consultancy and
manpower recruitment such as tax representation and advise
in direct, indirect tax and regulations would be excluded.
Valuation:
Value of taxable service: The gross amount charged
by the Chartered Accountant for such service rendered
by him'. Here, the gross amount has to be equated to the
fees received by him from his client. No deduction will
be claimed on the office /administrative expenses incurred
by the Chartered Accountant for earning the fees
Sub
contractor: Reimbursements: Exemptions available:
Credits available: As in the case of Management
Consultant above.
Sub
contractor: Outsourcing of accounting and maintenance
of records would be covered under taxable services as
would be covered under accounting itself.
Reimbursements:
Out-ofpocket expenses on travel /stay at an outstation,
which are separately reimbursed from the client, will
not form part of the taxable value. However, these expenses
have to be substantiated by documentary proof for the
value to be excluded
Specific
Exemptions available:
-
Notification 59/98: Exemption to services provided
by Practicing Chartered Accountant, Company Secretary,
Cost accountant in their professional capacity other
than those specified. Unfortunately in August 2002
an explanation was added which set out that any other
service provided by a CA falling into that category
would be liable under that head and exemption on the
same cannot be claimed. This is classic case of what
has been given by the right hand being removed by
the left hand.
Unresolved
issues:
Whether
the services like management consultancy are exempted
under Notification 59? In the opinion of the paper writers
as ST credit is available to most clients, and the matter
is grey it may be advisable to collect and pay on such
services.
The
above clarifications equally will
apply for practicing company secretaries as well as practicing
cost accountants.
V.
Construction services in respect of Commercial or Industrial
Building and Civil Structures
Date
of applicability: 8-7-2004
Service
provider: Any person providing the service of construction
of new building or civil construction or a part thereof;
or
-
repair, alteration or restoration of, or similar services
in relation to, building or civil structure which
is:
-
used or to be used, primarily used; or
-
occupied or to be occupied with, primarily with; or
-
engaged or to be engaged, primarily in.
-
commerce or industry or work intended for commerce
or industry but does not include road, air, railway
transport terminal, bridge, tunnel, long distance
pipeline and dam.
Excluded
service provider: Builder who builds residential buildings
or government buildings which are not for letting out.
Taxable
services: Any service provided to any person, by a
commercial concern, in relation to construction services.
Valuation:
Value of taxable service: Gross amount charged for
providing Construction services in respect of Commercial
or Industrial Building and Civil Structures.
Sub
contractor: Reimbursements: Exemptions available:
Credits available: As in the case of Management
Consultant above.
Exemptions
available:
Notification
15/2004 dt 10.9.2004: This exemption allows for 67%
exemption from the gross value of a contract and therefore
ST would be payable only on 33%. In such cases however
the input credit would not be admissible nor the deduction
for materials under Notification 12/ 2003 would be available.
The
above article is only to provide a birds eye view of the
some of the services. The law itself being in nascent
stage many of the possible problems have not arisen. In
time to come these problems and their mitigation would
be a challenging task.
ANNOUNCEMENT |
Members
who wish to contribute papers for publication in
the souvenir to be brought out to commemorate the
17th Annual Conference on Jan 22-23, 2005 are requested
to send papers preferably in a computer floppy or
through e-mail [ kscaa@vsnl.net ] with one hard
copy or those sending only hard copy may send the
same in triplicate to the Association before December
25, 2004 along with passport size photo and brief
resume. The paper should not normally exceed 15
typed pages. These will be considered by the Technical
Committee and the decision of the Association based
on the recommendations of the Technical Committee
will be final in all respects. |
