The Reader

This Note sets out some of the issues (identified during at the preliminary stage of

discussion on 26 and 27 February, 2010) that are likely to arise in application of the

amendments proposed by Finance Bill, 2010 relating to Service Tax. Members and

especially, Regional Councils, Branches, Study Circles and Chapters may consider these

and add any other issues relating to indirect taxes that they identify during course of

discussions on the Finance Bill. All are also encouraged to send these to Indirect

Taxation Committee on or before 15 March, 2010 so that they can be compiled and

considered by the Committee at its meeting scheduled on 17 March, 2010.

The Committee is also considering developing FAQs in due course and welcomes

questions as also answers from members in this regard. These would be considered by

the Committee and are proposed to be hosted on the website.

Please send your comments, suggestions, questions and answers to the Committee at

The definition of "port service" and "airport service" and the taxable service in that

regard is modified to cover any service rendered within a port/airport and a proviso is

added to the effect that provisions of S 65A ( classification) will not apply to any service

when the same is rendered wholly within the port and airport. Majority of the other

categories of services which when rendered within the port/airport that would get covered

repair", "cargo handling" as also "port service" and "airport service" would fall under

performance based service group for the purpose of determination of import and export

"port service" which is covered under recipient based service group for the purpose of

determination of export and import of service.

Is there a need to place "port" and "airport" service under the recipient based service

group for the purpose of determination of export and import service?

An Explanation is added to Section 65(105)(zzc) explaining the meaning of the

expression "commercial training or coaching center" with retrospective effect from

1.7.2003. There are Tribunal judgments holding otherwise. The issues that therefore,

arise are:

(i) What happens in the case where an assessee has not paid tax based on such

Tribunal judgments?

(ii) Would such an assessee now have to pay tax for past period and would such tax

have to be with interest?

(iii) Can the demand for the past period be raised on the basis of this Explanation? If

so, can it be within normal period of limitation (1 year) or can it be for extended period?

What about penalty?

An Explanation is added to section 65(105)(zzq) and (zzzh) which deems construction of

a new building and complex intended for sale, wholly or partly, by a builder to a person

before, during or after grant of completion certificate by the competent authority to be

services provided by the builder to the buyer/prospective buyer except in situations where

entire amount is paid by the buyer only after the receipt of completion certificate. This

amendment takes a position contrary to the one taken by the Tribunals and also in the

Circular No.108/02/2009-ST dated January, 29, 2009 issued by the Board. The issues

that arise in the context are:

(i) Whether a mere deeming fiction added through an Explanation can deem such an

(ii) In cases where a prospective buyer pays advance and books flat/apartment

which does not result in transferring the property by the builder to the

prospective buyer and, consequently, the question of builder providing service

to the buyer does not arise as was explained by the Board in the Circular of

January 29, 2009 - can mere addition of Explanation change the legal

position?

(ii) The amendment places persons buying premises but, making payment at different

times and otherwise placed equally, in unequal tax position and therefore, can it

be justified from Constitution perspective ?

(iii) When a prospective buyer makes an advance payment to the builder against

booking of specified unit in a building, that part also includes a price towards

the land on which the building is being constructed and treating the entire

amount being paid by the prospective buyer to the builder would amount to

apply ?

(v) It is quite likely that on the basis of this amendment the States also seeks to tax

and increase in the cost of properties? Should a mechanism to ensure that full

credit of taxes paid at earlier stages is made available be developed?

(vi) Entering into an agreement to sell as also acquiring premises after construction

attracts stamp duty at the State-level. Would this lead to double taxation on that

count also and appropriate mechanism needs to be developed to relieve double

taxation?

(vii) Issuance of completion certificate often takes very long and possession is given

before that and in some cases, buyers occupy the premises also. In such cases,

though the premises are purchased as immovable property, yet it would be liable

(viii) There would be many ongoing constructions/agreements and buyers would have

paid part amounts, the Section does not set out the manner in which these

cases ?

It needs to be clarified as to whether it would apply to the journeys undertaken on or after

the date on which the notification is issued. How would the user be able to take input tax

credit especially, where the tickets are purchased from the agents? Are the agents, those

of the airline or of the buyer and how would Valuation Rules apply in such cases ? What

about the situation where there are multiple agents?

issues that arise are:

(i) What happens to the cases where a landlord did not charge/ pay tax on rent on the

basis of Delhi High Court judgement? No time has been provided for making payment

without or with interest in the validation Section 76 of the Finance Bill,2010.

(ii) Can new show cause notices be issued for the past period for recovery of tax not paid

from June, 2007? If so, would it be for normal limitation period of one year or for

extended period of five years?

(iii) What amounts are to be included/excluded for computing taxable amount of

service?

The new entry, Section 65(105)(zzzzt), seeks to impose Service tax on temporary

transfer or permitting use or enjoyment of copyright relating to sound recording and

cinematographic film. Some of the States impose VAT on transfer or use or enjoyment of

users of these copyrights may be subjected to entertainment tax at state level which

would lead to significant cascading too. What provision needs to be brought in to avoid

such double taxation?