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What is Negative list of service Tax? | Company Vakil

Definition & Statements:

Negative list means the list of services which are exempt from service tax. As per Section 66B of Finance Act, 1994, service tax shall be levied on all services, except the services specified in the negative list. Negative list of services means that all services, excluding those specified in negative list will be subject to service tax. The Mega Exemption Notification issued by the CBEC and the issuance of guidance paper on the new approach to service tax has mentioned 38 services on which service tax shall be exempt. Negative list of service tax- section 66D: Clause (a) services by Government or as per service tax act negative list is a list which contains services which are not for a common man to understand the meaning of the Negative list of Service Tax.

This article is posted on Company Vakil

Service Tax:

    Negative List In the negative list system all services are taxable and only those services that are mentioned under negative list are exempted. Earlier all services were exempt from service tax except those specifically mentioned in the act. So basically it is the other way round now. The negative list is mentioned in the Finance Act 2012. Relevant extracts of the same are given below (see also the highlighted portion). However, the Finance Act did not mention the date of implementation of the same, which was notified through Notification No. 19 /2012-Service Tax dated June 05, 2012.

    Service Tax has been introduced by insertion of article 268A in the Constitution of India. The provisions relating to Service Tax were brought into force with effect from 1st July 1994. It extends to the whole of India except the state of Jammu & Kashmir. Service Tax is administered by the Central Excise & Service Tax Commission rates and the Service Tax Commission rates working under the Central Board of Excise & Customs (CBEC), Department of Revenue, Ministry of Finance, and Government of India.

    With effect from 1.07.2012, Service Tax regime based on the negative list has been introduced.

    Services that come under the broad definition of services as provided in section 65B (44) are liable to service tax.  As per Section 65B (44)   “service” means any activity carried out by a person for another for consideration and includes a declared service It also includes exclusions.

Service Tax Negative List as Amended by Finance Act 2017 Section 66D of Finance Act, 1994 (Service Tax Act). Service tax notification.

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 said Finance Act), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the following taxable services from the whole of the service tax livable thereon under section 66 B of the said Finance Act, namely:-

  1. Services provided to the United Nations or a specified international organization.
  2. Health care services by a clinical establishment, an authorized medical practitioner or paramedics.
  3. Services by a veterinary clinic in relation to health care of animals or birds.
  4. Services by an entity registered under section 12AA of the Income-tax Act, 1961 (43 of 1961) by way of charitable activities.
  5. Services by a person by way of-

    renting of precincts of a religious place meant for general public

     or conduct of any religious ceremony

  1. Services provided to any person other than a business entity by –

    an individual as an advocate

    or a person represented on and as arbitral tribunals

From 15 November 2015, the effective rate of service tax plus Swachh Bharat Cess, post introduction of Swachh Bharat Cess, was 14.5%. Currently, Swachh Bharat Cess and Krishi Kalyan Cess would also be levied on all services on which Service Tax is being levied and therefore, the Service Tax (including Swachh Bharat Cess and Krishi Kalyan Cess) applicable from 1 June 2016 has become 15%.

Abatement:

It is a process when a legal proceeding is interrupted or suspended, and the plaintiff is prohibited from going forward with the lawsuit at that particular time. Abatement is available to a defendant through procedural pleadings and may be considered a defence.

The taxability of services or the charge of service tax has been specified in section 66B of the Finance Act which is, “There shall be levied a tax at the rate of twelve per cent on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed”. From the analysis of the above definition, it can be said that the following conditions need to be fulfilled in order to make an activity chargeable to tax under the new provisions

  1. a) a service should be not be specified in the negative list or as covered under the exempted list of services as issued under the Mega Notification;
  2. b) Provided or agreed to be provided in the taxable territory
  3. c) By a person to another.

Why? it deserves for change:

Service tax was initially introduced in the year 1994 when service tax was made applicable on only three services. The scope of applicability of service tax has been widened over the years, covering almost 119 services under the ambit of taxability by 2012. However, the concept was based on the positive list of services, wherein the services specified under Section 65(105) of the Finance Act, 1994 (as amended) were taxable. Under this scenario, one had to analyze the various services and to seek whether the service provided is covered under any of the taxable services under the list. A new service tax regime has been introduced with the announcement of budget 2012 wherein all services will be taxed unless they are specified under the negative list entry or are otherwise exempted. Under the new system, the services will be taxed comprehensively, except the few ones which have been specified under the negative list. The Central Board of Excise and Customs [CBEC] has further issued “Mega Exemption Notification” vide Notification No. 25/2012-Service Tax dated 20th June 2012, enlisting the services which shall be exempt from the payment of service tax with effect from 1st July 2012. With the enforcement of the Finance Act 2012, Section 65 relating to the “definitions” of the various terms relating to the service tax has been omitted. However, two important sections which have been introduced defining the new service tax code are Section 65B which provides for a whole new set of definitions in the context of taxable services under the head “Interpretations” and Section 66D which states the “Negative list of service”.

Further, for the purpose of payment of service tax under the new approach, a new Minor Head- “All taxable Services” has been allotted under the Major Head “0044-Service Tax”.

Need for the new system

There have always been disputes about the taxability of a particular activity and also its classification in a particular taxable head. The provisions of Chapter V of the Finance Act, for levying service tax on various activities had been challenged under different grounds before the Courts in India. Some of the major grounds upon which the validity had been challenged include violation of Article 14 of the Constitution of India, no competency of the Parliament to levy tax on the activity within the domain of the State power, discriminatory nature of the provisions etc. Also, the definitions of each service as provided under Chapter V were often vague and broad.

In order to mitigate the administrative difficulties in defining a service and administering the service tax, the concept based on a negative list of service was first floated last year. However, the final set of notifications has come out on 20th June 2012. This new approach towards the service tax applicability has simplified and resolved the issue relating to whether any particular service is liable to be taxed.

 Meaning of Service

Earlier the word “Service” was not defined anywhere in Chapter V of the Finance Act, 1994. In order to ensure wide coverage of services under the ambit of service tax, the term ‘Service’ has been defined under the new inserted section 65B(44) in the Finance Act, 2012, which reads as follows-

“Service” means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include—

  1. a) An activity which constitutes merely-

    A transfer of title in goods or immovable property, by way of sale, gift or in any other manner.

    Such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution.

     A transaction in money or actionable claim.

  1. b) A provision of service by an employee to the employer in the course of or in relation to his employment
  2. c) Fees taken in any Court or tribunal established under any law for the time being in force.

The definition prescribes the following three essential ingredients that must be present in order to call an activity as ‘service’-

  • It must be an activity
  • It must be performed by a person for another person
  • The activity is performed for a consideration

Negative list of services means that all services, excluding those specified in negative list will be subject to service tax. However, in addition to items included in negative list, there will be exemptions, abatement’s and composition schemes as issued by the CBEC from time to time.

The Mega Exemption Notification issued by the CBEC and the issuance of guidance paper on the new approach to service tax has mentioned 38 services on which service tax shall be exempt. All the other services, which are not mentioned in the negative list, will attract service tax liability. Some of the services covered in the negative list category are as follows:

1) Health care services by a clinical establishment, an authorized medical practitioner or paramedics

2) Services provided by an individual as an advocate or a partnership firm of advocates by way of legal services to –

    an advocate or partnership firm of advocates providing legal services

    any person other than a business entity

    a business entity with a turnover up to rupees ten lakh in the preceding financial year

3) Services provided to a recognized sports body as an individual as a player, referee, umpire, coach or team manager for participation in a sporting event organized by a recognized sports body.

 

Conclusion:

This article explains complete details about negative list of service tax and we all should aware about negative list of service tax.

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