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SERVICE TAX ON CONCERNS OTHER THAN COMMERCIAL CONCERNS |
Bharat Shemlani
B. Com., F.C.A. |
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The Finance Act, 1994 vide Chapter
V (Act) as amended from time to time levied service
tax on services notified under the Act. Service tax
has been imposed as an indirect tax, which is demanded
from one person on the expectation, and intention
that such person shall indemnify at the expenses of
other person who is consuming such service.
Various categories of Service providers
have been defined under the Act to include Concerns,
Commercial concerns, Agency, Establishments, Enterprises,
Persons, etc. However, nowhere in the Act these expressions
including “Concern” or “Commercial Concern” has been
defined. The Act has provided that certain services
are taxable only if provided by a Commercial Concern.
Further, the Government has granted exemption to Service
providers other than Commercial Concern providing
certain services, through Notifications issued under
section 93 of the Act.
As stated above, neither the expression
Commercial concern nor Non-commercial concern is defined
under the Act. An attempt has been made in this article
to highlight the issues arising thereof.
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1.1 The
definition of assessee as provided in section 65(7)
of the Act means” a person liable to the service tax
and includes his agent.” The expression person is
not defined anywhere in the Act.
1.2 Hence one has to refer to the
definition of person provided in section 3(42) of
the General Clauses Act, 1897 which defines ”person”
shall include any company or association or body of
individuals, whether incorporated or not.
1.3 The word Service provider has
also not been specifically defined in the Act.
However, the various categories of services and service
providers have been defined under section 65 to interalia
include services provided by commercial and/or non-commercial
concerns and the term Service provider has to be construed
accordingly. Even through subsequent Notification
issued under section 93 of the Act, the Central Government
has exempted certain services provided by Service
provider other than commercial concerns from whole
of service tax.
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2.1 In case of following services
the Act itself has provided either in the definition
of service provider or taxable service that Commercial
concerns providing the said services will be liable
to service tax. In other words, Individuals or Non-commercial
concerns/organizations providing said services will
not be liable to service tax. |
| a) Advertising |
h) Convention |
| b) Courier |
i) On line information
and database access or retrieval |
| c) Manpower Recruitment |
j) Sound recording |
| d) Security |
k) Dry cleaning |
| e) Credit Rating |
l) Business Auxiliary
Services |
| f) Market Research |
m) Internet Café |
| g) Photography # |
n) Video tape production #
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| # Read with Exemption Notifications issued under section 93 of the Act.
(paragraph 2.2 below)
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2.2 Further, through Notifications
issued under section 93 of the Act, the Central Government
has exempted certain services provided by service
provider other than commercial concerns from whole
of service tax. |
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a) Photography - Notification No.
6/2001- Service tax dated 9th
July, 2001 has exempted taxable service
provided to a customer in relation to still photography
by a photography studio or agency, which is not registered
under law relating to Shops and Establishment or any
other law of State for the time being in force. The
said notification is amended by Notification No. 13/2001-Service
tax dated 27th December, 2001 exempting
taxable service provided to a customer in relation
to still photography by service provider other than
commercial concern i.e. Individual professional photographer.
b) Videotape production – Notification
No. 7/2001- Service tax dated 9th
July, 2001 has exempted taxable service
provided to a client in relation to videotape production
by Individual professional videographers.
c) Commissioning and Installation
- Notification No. 18/2003-Service tax dated 21st
August, 2003 exempting taxable service provided to
a customer in relation to commissioning and installation
by service provider other than commercial concern.
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3.1 The expression “Commercial concern
or Non-commercial concern” is not defined anywhere
in the Act. Commercial concern means “Concern/Organization
engaged in or connected with commerce”. To understand
the meaning of Commerce a reference is to be made
to the following
“'Trade'
has been explained, to quote the passage where it
was considered in the Concise Oxford Dictionary as
'business, especially mechanical or mercantile
employment as opposed to profession carried on as
means of livelihood or profit' The meaning of
commerce as given by the Concise Oxford Dictionary
is “exchange of merchandise, especially on large scale”.
In ordinary parlance, trade and commerce carry with
them the idea of purchase and sale with a view to
make profit. If a person buys goods with a view
to sell them for profit, it is an ordinary case of
trade. If the transactions are on a large scale it
is called commerce. Nobody can define the volume
of business, which would convert a trade into commerce.
But everybody understands the distinction between
the two with sufficient vagueness.”
(Gannon Dunkerley &
Co. (Madras) Ltd. V. The State Of Madras. [1954-(005)-STC
-0216 -MAD] & The Hyderabad Asbestos Cement Products
Limited And Another V. The State Of Andhra Pradesh
And Others. [1972-(030)-STC -0026 –AP]) (emphasis
supplied)
3.2 Hence, the expression Non-commercial
concern is to be construed as a concern or organization
engaged or connected in providing services without
any motive of making profit. This fact can be evidenced
by the object clause of the Memorandum and Articles
of Association of such Non-commercial concerns. The
popular examples of non-commercial concerns are Government
Departments, Trade Organizations or Associations,
Chambers of Trade or Industry, Co-operative societies,
Charitable or Religious Institutions, NGO etc.
3.3 The CBEC has clarified that
Directorate of Audio and Visual Publicity (DAVP) in
the Ministry of Information and Broadcasting is not
being a “commercial concern” and hence not liable
to pay service tax under the category of Advertising
Services. It is also clarified that the term “commercial
concern” does not include a Government department
within its scope and therefore, the Speed Post services
provided by the Department of Posts do not attract
service tax under the category of Courier Services.
3.4 The Central Government vide
letter no. F. No.B.11/1/2001-TRU dated 9th
July, 2001 had clarified in respect of Convention
services that holding conventions by Chambers of Commerce
and Industry for their members would not be liable
to service tax, as the Chambers of Commerce and Industry
is not a commercial concern. The Memorandum and Articles
of Association of such organizations would indicate
whether they are commercial concern or not.
3.5 The Central Government vide
letter no. F. No.B.11/1/2001-TRU dated 9th
July, 2001 had clarified in respect of Notification
No. 6/2001-ST dated 9th July, 2001 exempting
service tax on still photography by Individual photographer,
that in essence, service tax is payable by shops and
studios, processing and developing labs etc. providing
still photography services and not by the individual
photographers. Hence, the intention was to exempt
individual photographers providing still photography.
However, subsequently the Notification was amended
by Notification No. 13/2001-Service tax dated 27th
December, 2001 exempting taxable service provided
to a customer in relation to still photography by
service provider other than commercial concern.
3.6 The CBEC vide Circular No.59/8/2003
dated 20th June, 2003 has clarified in
case of Commercial coaching and Training services,
that service tax is on institution/establishment providing
commercial coaching and training. Individuals providing
services at the premises of a service receiver would
not be covered under service tax provided they are
not sent by the Institutes/establishments providing
commercial coaching and training.
3.7 The paragraph 1.3 of Circular
No. 62/11/2003 dated 21st August, 2003
issued by CBEC in respect of Notification No. 18/2003-ST
dated 21st August, 2003 exempting Commission
and installation services provided by service provider
other than commercial concern has clarified that the
commissioning or installation services provided by
an individual will be exempt from service tax.
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4.1 Now the first question arises
as whether Individual providing taxable services under
categories mentioned under paragraphs 2.1 & 2.2
above are liable to service tax under the said categories.
The answer to this question
lies in paragraph 3.6 & 3.7 above. If the Individual
is providing services on his own, for his livelihood
without establishing office, employing any staff etc.
then he is not liable to pay service tax on services
rendered. But once, the Individual has started carrying
out activities on large scale by setting up office,
employing personnel etc. then he is not entitled to
claim exemption from service tax and he will be liable
to pay service tax.
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4.2 The second question arises is
whether, a Non- commercial concern carrying on certain
commercial activities which is incidental or ancillary
activity to achieve the main object of the Non-commercial
concern is liable to service tax or not. For example;
• Whether
an NGO charging nominal fees for assisting underprivileged
people by promoting, marketing or sale of products
made by such underprivileged people would be liable
to pay service tax on fees received under Business
Auxiliary Services. OR
• Whether Educational Institution run
by Charitable trust occasionally letting out its auditorium
or hall for convention purposes for hire charges to
achieve the main objects of the trust, would be liable
to pay service tax under Convention services.
In this regard useful reference can be made to Supreme
Court’s decision in Commissioner Of Sales Tax V.
Sai Publication Fund. (And Another Appeal). [2002-(126)-STC
-0288 –SC], wherein it was observed by the Supreme
Court “the primary and dominant activity of the
Trust is to spread the message of Saibaba. This main
activity does not amount to "business".
The activity of publishing and selling literature,
books and other literature is obviously incidental
or ancillary to the main activity of spreading message
of Saibaba and not to any business as such even without
profit-motive and it is in a way a means to achieve
the object of the Trust through which message of Saibaba
is spread. It is clear from the trust deed and objects
contained therein that it was not established with
an intention of carrying on the business/occupation
of selling or supplying goods. This being the position,
it cannot be said that the Trust carries on the business
of selling and supplying goods so as to fall within
the meaning of "dealer" under section 2(11)
of the Act. Thus, if the main activity of a person
is not trade, commerce, etc., ordinarily incidental
or ancillary activity may not come within the meaning
of "business". To put it differently, the
inclusion of incidental or ancillary activity in the
definition of "business" pre-supposes the
existence of trade, commerce, etc. The definition
of "dealer" contained in section 2(11) of
the Act clearly indicates that in order to hold a
person to be a "dealer", he must "carry
on business" and then only he may also be deemed
to be carrying on business in respect of transaction
incidental or ancillary thereto. We have stated above
that the main and dominant activity of the Trust in
furtherance of its object is to spread message. Hence,
such activity does not amount to "business".
Publication for the purpose of spreading message is
incidental to the main activity, which the Trust does
not carry as business. In this view, the activity
of the Trust in bringing out publications and selling
them at cost price to spread message of Saibaba does
not make it a dealer under section 2(11) of the Act.”
Further useful reference can also be made to the
ratio laid down by the Apex Court in case of State
Of Tamil Nadu And Another V. Board Of Trustees Of
The Port Of Madras.1999- [(114)-STC -0520 –SC]
wherein it was observed that “If the main
activities are "business" then the sales
in connection with or incidental or ancillary thereto
need not have been intended as a business or commercial
activity. Their mere connection with or being
incidental or ancillary to something else which was
"business" was sufficient to include such
sales in the main business. The second part of the
last extract starting with the words "but the
converse is not true", is to be modified to mean
that if the main activity falling under sub-clause
(i) did not amount to business, normally these sales
made in connection with or were incidental or ancillary
to the main activity would not be "business"
but there could still be an exception where the sales
so connected or incidental or ancillary to the main
"non-business" activity were proved to have
been made with an independent intention to do business
and the burden of proof to prove the exception would
fall on the Revenue. In our view the Andhra Pradesh
High Court did not, in the above passage, imply that
even where the main activities were not business,
the assessee must prove want of an intention to carry
on business in the connected, incidental or ancillary
activity which involved sales. It is possible, in
exceptional cases that such latter sales could per
se be business having been proved by the revenue to
have been carried on with such an explicit intention.
The burden, as already stated, would here lie on the
Revenue.” (emphasis supplied)
Though the said judgments were
delivered in the context of definition of Dealer and
Business under the Sales Tax Law, will definitely
help to distinguish between commercial and non-commercial
activities and applicability of service tax on certain
commercial activities which are incidental and ancillary
activities to achieve the main object of the Non commercial
concern. |
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In view thereof, the Board should
come out with necessary clarificatory circular to
avoid unnecessary litigation and undue hardship to
the concerned service providers.
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