Category Archives: Service Tax

Service Tax – Nature and Character of

In Association of Leasing and Financial Service Companies v. Union of India, (2011) 2 SCC 352, the court under the caption “nature and character of service tax” held as under:
“In All India Federation of Tax Practitioners v. Union of India, (2007) 7 SCC 527 the Court explained the concept of service tax and held that service tax is a value added tax which in turn is a destination based consumption tax in the sense that it is levied on commercial activities and it is not a charge on the business but on the consumer. That, service tax is an economic concept based on the principle of equivalence in a sense that consumption of goods and consumption of services are similar as they both satisfy human needs. Today with the technological advancement there is a very thin line which divides a “sale” from “service”. That, applying the principle of equivalence, there is no difference between production or manufacture of saleable goods and production of marketable/saleable services in the form of an activity undertaken by the service provider for consideration, which correspondingly stands consumed by the service receiver. It is this principle of equivalence which is inbuilt into the concept of service tax under the Finance Act, 1994. That service tax is, therefore, a tax on activity. That, service tax is a value added tax. The value addition is on account of the activity which provides value addition, for example, an activity undertaken by a chartered accountant or a broker is an activity undertaken by him based on his performance and skill. This is from the point of view of the professional. However, from the point of view of his client, the chartered accountant/broker is his service provider. The value addition comes in on account of the activity undertaken by the professional like tax planning, advising, consultation etc. It gives value addition to the goods manufactured or provided or sold. Thus, service tax is imposed every time service is rendered to the customer/client.
The same view is reiterated broadly in Godfrey Phillips India Ltd. v. State of U.P., (2005) 2 SCC 515 in which a Constitution Bench observed that in the classical sense a tax is composed of two elements: the person, thing or activity on which tax is imposed. Thus, every tax may be levied on an object or on the event of taxation. Service tax, is thus, a tax on activity whereas sales tax is a tax on a sale of a thing or goods.” Union of India v. Bengal Shrachi Housing Development Limited, (2018) 1 SCC 311.

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Levy and Collection of Tax – Distinction Between

In Peekay Re-Rolling Mills (P) Ltd. v. CST, it was held thus:
“What is important to note is that the expression”levy” would include “assessment”, though it would not include “collection”. This being the case, it is clear that the expression “primarily leviable upon the lessor” makes it clear that the lessor should be the person upon whom levy takes place-in the sense that “assessment” has to be of such person. “Levy”, in all cases of indirect taxes, is never upon an individual-it is upon a specific aspect of what is sought to be taxed. Therefore, when the expression “primarily leviable” is used in relation to a person and not an activity, it has reference to the assessee upon whom the assessment is made under the Act. Thus construed, it is clear that, the person liable to pay the tax is only the service provider and not the recipient of the service. Union of India v. Bengal Shrachi Housing Development Ltd., (2018) 1SCC 311.


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Indivisible Works Contract – Exclusions

It is interesting to note that while introducing the concept of service tax on indivisible works contract various exclusions are also made such as works contract in respect of roads, airports, airways transport, bridges, tunnels and dams. These infrastructure projects have been excluded and continue to be excluded presumably because they are conceived in the national interest. If the submission of the Revenue department was right each of these excluded works contract could be taxed under the five sub-heads of section 65(105) contained in the Finance Act, 1994. For example, a works contract involving the construction of a bridge or dam or tunnel would presumably fall within Section 65(105)(zzd) as a contract which relates to erection, commissioning or installation. It is clear that such contracts were never intended to be the subject matter of service tax. Commissioner Central Excise and Customs v. ABB Limted, (2016) 1 SCC 170.

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