Board should clear air on service tax

EXIM MATTERS

The Central Government has issued service tax notifications that will not only bring new services within the service tax ambit from the May 1 but also expand the scope of several services that are already taxable.

The new service that seems to be somewhat nightmarish is the "Business Support Service." According to clause 104(C) of Section 65 of the Finance Act, 1994, "support services of business or commerce" means any services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfillment services, information and tracking of delivery schedules, management services, accounting and processing of transactions, operational assistance for marketing, formulation of customer service and pricing policies, infrastructural support services and other transaction processing."x

The explanation that follows says that for the purposes of the above clause the expression "infrastructural support services" includes providing office along with office utilities, lounge, reception with competent personnel to handle messages, secretarial services, internet and telecom facilities, pantry and security.

The joint secretary (TRU) of the Central Board of Excise and Customs (CBEC)had clarified through letter dated February 28, 2006, that "business entities outsource a number of services for use in business or commerce."

These services include transaction processing, routine administration or accountancy, customer relationship management and tele-marketing. There are also business entities which provide infrastructural support such as providing instant offices along with secretarial assistance known as "Business Centre Services".

It is proposed to tax all such outsourced services. If these services are provided on behalf of a person, they are already taxed under the Business Auxiliary Service head. Definition of support services of business or commerce gives a list of outsourced services.

While the joint secretary's letter is quite categorical that only the outsourced services have to be taxed and that the list of services given in Clause 104 (C) quoted above is a comprehensive list, a plain reading of the definition conveys that the list is only illustrative and not necessarily confined to outsourced services.

It is quite clear that importers and exporters which engage the services of say an intermediary on turnkey basis to get them licences will have to pay service tax on the fees that they pay to such intermediaries and that businesses that engage consultants to handle on turnkey basis their ESI, PF, sales tax etc. matters also will have to pay service tax on the fees that they pay to such consultants.

What is, however, not clear is the status of other services that they receive for business or commerce. For example, what is the status of legal advice that a lawyer gives in connection with business or commerce.

The definition at Clause 104 (C) covers any services provided in relation to business or commerce. It is the inclusive clause that lists a few services. But an inclusive clause cannot curtail the scope of the main clause, which remains "any service provided in relation to business or commerce". An inclusive clause is always illustrative and not exhaustive.

The CBEC should quickly sort out the confusion and categorically say as to whether service tax is leviable on any services provided for business or commerce or whether only the services listed in clause 104 ( c) attract service tax and that too only when such services are outsourced.

tncr@sify.com