Notification No 36/2010 creates avoidable confusion! : 18-07-2010

By S Sivakumar, CA

THE Government, in its infinite wisdom, has recently issued a series of Notifications. Of these, the most important Notification seems to be the one bearing No. 36/2010.

Though, on the face of it, the intention seems to be to exempt the new services which have come into effect from July 1, 2010, from the levy of service tax, in respect of the advance amounts received on or before June 30, 2010, the Government may seem to have committed a blunder by not appropriately wording this all important Notification, which makes a sweeping statement that all services �specified’ in Section 76(A) of the Finance Act, 2010, are exempted, in respect of advance monies received till June 30, 2010.

I’ve reproduced both the Notification No. 36/2010-ST dated 28-6-2010 and the text of Section 70(A) of the Finance Act, 2010, incorporating the corrigendum issued on 29-6-2010:

Notification No.36/2010-ST, Dated : June 28, 2010

In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the Finance Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services specified in clause (A) of section 76 of the Finance Act, 2010 (14 of 2010) other than services referred to in clause (zzc) and (zzzz) of sub-section (105) of section 65 of the Finance Act from so much of the service tax leviable thereon under section 66 of the Finance Act as is equal to the service tax calculated on a value which is equivalent to the amount of advance payment received before the said appointed date.

Explanation. – For the purpose of this notification,

(i) �appointed date� means the 1st day of July, 2010;

(ii) �advance payment� means consideration received for the said taxable services to be provided.

  1. This notification shall come into force on the date of its publication in the Official Gazette.
  2. No. 334/3/2010 -TRU

(K.S.V.V.Prasad)
Under Secretary to the Government of India

SECTION 70(A) OF FINANCE ACT, 2010

Amendment of Act 32 of 1994.

  1. In the Finance Act, 1994, –

(A) in section 65, save as otherwise provided, with effect from such date as the Central Government may, by notification in the Official Gazette, appoint, –

(1) in clause (19), in sub-clause (ii), the Explanation shall be omitted;

(2) after clause (19a), the following clause shall be inserted, namely: –

‘(19b) “business entity” includes an association of persons, body of individuals, company or firm but does not include an individual;’;

(3) in clause (25b), for the words “commercial or industrial construction service”, the words “commercial or industrial construction” shall be substituted;

(4) for clause (77c), the following clause shall be substituted, namely: –

‘(77c) “passenger” means any person boarding an aircraft in India for performing domestic journey or international journey;’;

(5) for clause (82), the following clause shall be substituted, namely: –

‘(82) “port service” means any service rendered within a port or other port, in any manner;’;

(6) in clause (105), –

(a) for sub-clause (zn), the following sub-clause shall be substituted, namely: –

“(zn) to any person, by any other person, in relation to port services in a port, in any manner:

Provided that the provisions of section 65A shall not apply to any service when the same is rendered wholly within the port;”;

(b) in sub-clause (zzc), the following Explanation shall be inserted and shall be deemed to have been inserted with effect from the 1st day of July. 2003, namely: –

‘Explanation. – For the removal of doubts, it is hereby declared that the expression “commercial training or coaching centre” occurring in this sub-clause and in clauses (26), (27) and (90a) shall include any centre or institute, by whatever name called, where training or coaching is imparted for consideration, whether or not such centre or institute is registered as a trust or a society or similar other organisation under any law for the time being in force and carrying on its activity with or without profit motive and the expression “commercial training or coaching” shall be construed accordingly;’;

(c) for sub-clauses (zzl) and (zzm), the following sub-clauses shall be substituted, namely: –

“(zzl) to any person, by any other person, in relation to port services in other port, in any manner:

Provided that the provisions of section 65A shall not apply to any service when the same is rendered wholly within other port;

(zzm) to any person, by airports authority or by any other person, in any airport or a civil enclave:

Provided that the provisions of section 65A shall not apply to any service when the same is rendered wholly within the airport or civil enclave;”;

(d) in sub-clause (zzq), –

(i) the word “service” shall be omitted;

(ii) the following Explanation shall be inserted, namely: –

“Explanation. – For the purposes of this sub-clause, the construction of a new building which is intended for sale, wholly or partly, by a builder or any person authorised by the builder before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or the person authorised by the builder before grant of completion certificate by the authority competent to issue such certificate under any law for the time being in force) shall be deemed to be service provided by the builder to the buyer;”;

(e) in sub-clause (zzzh), the following Explanation shall be inserted, namely: –

“Explanation. – For the purposes of this sub-clause, construction of a complex which is intended for sale, wholly or partly, by a builder or any person authorised by the builder before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or a person authorised by the builder before the grant of completion certificate by the authority competent to issue such certificate under any law for the time being in force) shall be deemed to be service provided by the builder to the buyer;”;

(f) for sub-clauses (zzzn) and (zzzo), the following sub-clauses shall be substituted, namely: –

“(zzzn) to any person, by any other person receiving sponsorship, in relation to such sponsorship, in any manner;

(zzzo) to any passenger, by an aircraft operator, in relation to scheduled or non-scheduled air transport of such passenger embarking in India for domestic journey or international journey;”;

(g) in sub-clause (zzzr), the following Explanation shall be inserted, namely: –

‘Explanation. – For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, “auction by the Government” means the Government property being auctioned by any person acting as auctioneer;’;

(h) in sub-clause (zzzz), –

(i) for the portion beginning with the words “to any person” and ending with the words “business or commerce”, the following shall be substituted and shall be deemed to have been substituted with effect from the 1st day of June, 2007, namely: –

“to any person, by any other person, by renting of immovable property or any other service in relation to such renting, for use in the course of or for furtherance of, business or commerce.”;

(ii) in Explanation 1, after item (iv), the following item shall be inserted, namely: –

“(v) vacant land given on lease or licence for construction of building or temporary structure at a later stage to be used for furtherance of business or commerce;”;

(i) in sub-clause (zzzze), the words “for use in the course, or furtherance, of business or commerce,” shall be omitted;

(j) in sub-clause (zzzzf), in the Explanation, for clauses (ii) and (iii), the following clause shall be substituted, namely: –

“(ii) the gross amount charged by the insurer from the policy holder for the said service provided or to be provided shall be equal to the maximum amount fixed by the Insurance Regulatory and Development Authority established under section 3 of the Insurance Regulatory and Development Authority Act, 1999, as fund management charges for unit linked insurance plan or the actual amount charged for the said purpose by the insurer from the policy holder, whichever is higher;”; ( 41 of 1999)

(k) Explanation to sub-clause (zzzzm) shall be omitted;

(I) after sub-clause (zzzzm), the following sub-clauses shall be inserted, namely: –

‘(zzzzn) to any person, by any other person, for promotion, marketing, organising or in any other manner assisting in organising games of chance, including lottery, Bingo or Lotto in whatever form or by whatever name called, whether or not conducted through internet or other electronic networks;

(zzzzo) by any hospital, nursing home or multi-speciality clinic, –

(i) to an employee of any business entity, in relation to health check-up or preventive care, where the payment for such check-up or preventive care is made by such business entity directly to such hospital, nursing home or multi-speciality clinic; or

(ii) to a person covered by health insurance scheme, for any health check-up or treatment, where the payment for such health check-up or treatment is made by the insurance company directly to such hospital, nursing home or multi-speciality clinic;

(zzzzp) to any business entity, by any other person, in relation to storing, keeping or maintaining of medical records of employees of a business entity;

(zzzzq) to any person, by any other person, through a business entity or otherwise, under a contract for promotion or marketing of a brand of goods, service, event or endorsement of name, including a trade name, logo or house mark of a business entity by appearing in advertisement and promotional event or carrying out any promotional activity for such goods, service or event.

Explanation. – For the purposes of this sub-clause, “brand” includes symbol, monogram, label, signature or invented words which indicate connection with the said goods, service, event or business entity;

(zzzzr) to any person, by any other person, by granting the right or by permitting commercial use or exploitation of any event including an event relating to art, entertainment, business, sports or marriage organised by such other person;

(zzzzs) to any person, by an electricity exchange, by whatever name called, approved by the Central Electricity Regulatory Commission constituted under section 76 of the Electricity Act, 2003, in relation to trading, processing, clearing or settlement of spot contracts, term ahead contracts, seasonal contracts, derivatives or any other electricity related contract; ( 36 of 2003)

(zzzzt) to any person, by any other person, for –

(a) transferring temporarily; or

(b) permitting the use or enjoyment of,

any copyright defined in the Copyright Act, 1957, except the rights covered under sub-clause (a) of clause (1) of section 13 of the said Act; ( 14 of 1957 )

(zzzzu) to a buyer, by a builder of a residential complex, or a commercial complex, or any other person authorised by such builder, for providing preferential location or development of such complex but does not include services covered under sub-clauses (zzg), (zzq), (zzzh) and in relation to parking place.

Explanation. – For the purposes of this sub-clause, “preferential location” means any location having extra advantage which attracts extra payment over and above the basic sale price;’

Let’s now understand the confusion that this Notification has created…

The infamous Notification No. 36/2010 states that the �specified services’ are exempted from the levy of service tax, in respect of advance amounts received on or before June 30, 2010. Now, if one sees this Notification, apart from the new taxable services, certain existing taxable services like Construction of Complex Services, Renting of Immovable Property services and Commercial or Industrial Construction services are also services, �specified’ in this Notification.

What constitutes specified goods, is a controversial topic under the central excise law. In Gopal Hosiery v. Asst Collector of Central Excise 1989 (41) E.L.T. 35 (Cal.), the Calcutta High Court held that the word �specified’ means specifically named or mentioned, that is to say, mentioned in specie or as a species. This decision has been followed by other High Courts, as well. Based on this decision, a view can clearly be taken that, all services which find a mention in this Notification, are exempted from the levy of service tax, in respect of amounts received prior to July 1, 2010.

Based on this Notification, many flat buyers are telling the Developers and Builders that, service tax on construction services cannot be levied, on amounts paid by them on or before June 30, 2010, as �construction of complex’ services is a �specified’ service in terms of Notification No. 36/2010. I am hearing that a similar stand is being taken by some service receivers in respect of the other �specified’ services, as well.

Notwithstanding the fact that, the clear intention of the Government is to give some reprieve to the new taxable services, the Notification No. 36/2010, at its existing format, is bound to create further confusion, especially in respect of the services associated with the realty sector, which is already reeling under a total lack of clarity in respect of the service tax provisions.

Will the Board move in and quickly amend this Notification No. 36/2010 by clearly stating that the exemption is only available in respect of the newly introduced services? Probably, the insertion of the words �newly introduced’ before the words �taxable services’ would serve the purpose.

Before parting..

The Explanation to the Notification states that �advance payment� means consideration received for the said taxable services to be provided. This Notification seems to go against the basic structure of the scheme governing the levy of service tax, which gets attracted on amounts received for services provided or to be provided. Notwithstanding this, since this is a beneficial notification, it would still be binding on the Revenue, in respect of new services which have come into effect from July 1, 2010.

(The Author is Director, S3 Solutions Pvt Ltd, Bangalore)

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