In my previous article I had commented mostly on the drafting of the charging section. There are more aspects which need to be dealt with which I shall do now in this treatise.
The Concept Paper now says at para 2.9 that the Central Government shall have power to declare an activity as a provision of service or otherwise and such activity, notwithstanding anything to the contrary, shall be considered as a provision of service. There are two things wrong here. First , this is an inherent power and there is no need to make a provision for this. One does not have to state something which is inherent. Secondly this inherent power does not exist to the extent that the government can call something a service when it is not. The expression “notwithstanding anything to the contrary” gives the meaning that but for this declaration, it is not service. Really speaking, if it is not service under Article 92C of the Constitution, merely giving a clarification or issuing a notification cannot make it a service. If that was so, so many Supreme Court judgments would have been redundant. We have to take note that on the goods (central excise ) side, even if the First Schedule which contains certain goods, they have been declared as not goods and non-excisable by the Supreme Court in several judgments such as CCE vs Markfed Vanaspati, 2003(153)ELT 491 (SC), Moti Laminates vs CCE, 1995 (76) ELT 241 (SC), and Hyderabad Industries vs UOI, 1995 (78) ELT 641 SC. The same principle applies in the case of service. If it is not a service, the government cannot call it a service. Let there be no misapprehension about it.
Para 3.2.4 of the paper is very loosely worded and says that political parties , religious entities , decorations and awards have been taken off the Negative List, meaning they will be taxed, because they are rendered by persons who “may not” be in engaged in economic activity. The expression “ may not”is unwarranted. The government has to make up its mind. It cannot may or may not. In fact they are not economic activity but , as I have said in my previous article, all activities are chargeable to tax. I repeat, “ The idea should be to tax all activity in the nature of service and not just economic activity (even provided by the Government) so long as it is paid for. The expression “whether or not for a pecuniary profit” should be deleted and reworded as “for pecuniary consideration”. The word “profit” is incorrect. It should be “consideration”. Decorations are not chargeable in any case as they are not given on an invoice or payment. They do not have a value in money terms. So there cannot be any tax. They are also not service in any case. The hang up about economic activity must go. Then the government cannot charge service tax on Delhi Gymkhana Club or Rosanara Club as they are not doing any economic activity. Any activity for which payment is made by the person benefited by it, is to be regarded as a service.
Conclusion: At para 2.5 the general expression that the taxation will be confined to economic activity is the one which is creating all the confusion. It is directly contradictory to the definition of service. Service has been defined as “ anything which …......”. So how can tax be limited to economic activity? It should be “any activity which is for financial consideration”. This is a major point which must be settled before the service tax on comprehensive basis is finalised for this Budget. The expression economic activity is not a precise concept. When a Club allows you to use a spa or swimming pool for payment of monthly fee, it is or is not a economic activity becomes an issue. So all controversy will be over is we use the expression “any activity on financial consideration”. Finally it is better to make the Negative List very small. If it is necessary to help any sector , it is better to give subsidy in a transparent manner.