Services: Taxable event and point of taxation under GST regime
SEPTEMBER 08, 2016
By R N Jha
SERVICE TAX, starting its journey from the year 1994 as an independent stream of Central indirect tax, will change its course of flow under GST regime (when it will be subsumed in 'Goods and Service Tax'). For "Services", the GST will retain the components of taxability- 'Taxable Event' & 'Point of Taxation' with different concept & approach. The tributary will not lose its identity & character even after being submerged into the main-stream!
For better understanding of the concept of 'Taxable Event' & 'Point of Taxation' in respect of SERVICES , the comparative analysis (under the present system of indirect taxation & under GST regime) has been done and is given in tabulated form below:
Service Tax: Present system of taxation
Taxable Event -Service provided or agreed to be provided/ rendering services or agreement to render services.
Point of Taxation : As per the provisions of Point of Taxation Rules, 2011
Rule 2(e): "point of taxation" means the point in time when a service shall be deemed to have been provided.
[Refer Section 66B of Finance Act , 1994 ; Point of Taxation Rules,2011]
GST REGIME
Taxable Event : Supply of services
Point of Taxation : Time of Supply of services
Services defined in the GST Model law:
2(88) "services" means anything other than goods;
Explanation: Services include intangible property and actionable claim but does not include money.
Supply of services:Section 3 of the Model GST Law provides the meaning and scope of supply of services:
3(1)
Supply includes
(a) all forms of supply of goods and/or services such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business,
(b) importation of service, whether or not for a consideration and whether or not in the course or furtherance of business, and
(c) a supply specified in Schedule I, made or agreed to be made without a consideration.
SCHEDULE I
MATTERS TO BE TREATED AS SUPPLY WITHOUT CONSIDERATION
1. Permanent transfer/disposal of business assets.
2. Temporary application of business assets to a private or non-business use.
3. Services put to a private or non-business use.
4. Assets retained after deregistration.
5. Supply of goods and / or services by a taxable person to another taxable or nontaxable person in the course or furtherance of business.
3(2)
Schedule II, in respect of matters mentioned therein, shall apply for determining what is, or is to be treated as a supply of goods or a supply of services.
SCHEDULE-II
MATTERS TO BE TREATED AS SUPPLY OF SERVICES
Schedule II
Sr. No
Description of service
1(2)
Transfer
Any transfer of goods or of right in goods or of undivided share in goods without the transfer of title thereof, is a supply of services.
2(1)
Land and Building
Any lease, tenancy, easement, licence to occupy land is a supply of services.
2(2)
Land and Building
Any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services.
3
Treatment or process
Any treatment or process which is being applied to another person's goods is a supply of services.
4(2)
Transfer of business assets
Where, by or under the direction of a person carrying on a business, goods held or used for the purposes of the business are put to any private use or are used, or made available to any person for use, for any purpose other than a purpose of the business, whether or not for a consideration, the usage or making available of such goods is a supply of services.
4(3)
Transfer of business assets
Where any goods, forming part of the business assets of a taxable person, are sold by any other person who has the power to do so to recover any debt owed by the taxable person, the goods shall be deemed to be supplied by the taxable person in the course or furtherance of his business.
5(a)
Renting of immovable property
It is a Declared Service under Finance Act, 1994 (Refer Section 66E(a) of FINANCE ACT,1994).
5(b)
Construction of a complex, building, civil structure or a part thereof , including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or before its first occupation, whichever is earlier.
Explanation.- For the purposes of this clause-
(1) the expression "competent authority" means the Government or any authority authorized to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely:–
(i) an architect registered with the Council of Architecture constituted under the Architects Act, 1972; or
(ii) a chartered engineer registered with the Institution of Engineers (India); or
(iii) a licensed surveyor of the respective local body of the city or town or village or development or planning authority;
(2) the expression "construction" includes additions, alterations, replacements or remodeling of any existing civil structure;
It is Declared Service under Finance Act, 1994.
Almost similar provisions have been retained :
Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion- certificate by the competent authority.
(Refer Section 66E(b) of FINANCE ACT,1994).
5(c)
Temporary transfer or permitting the use or enjoyment of any intellectual property right;
It is Declared Service under Finance Act, 1994 ( Refer Section 66E(c) of FINANCE ACT,1994).
5(d)
Development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software;
It is Declared Service under Finance Act, 1994 ( Refer Section 66E(d) of FINANCE ACT,1994).
5(e)
Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;
It is Declared Service under Finance Act, 1994 ( Refer Section 66E(e) of FINANCE ACT,1994).
5(f)
Works contract including transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;
2(107) "works contract" means an agreement for carrying out for cash, deferred payment or other valuable consideration, building, construction, fabrication, erection, installation, fitting out, improvement, modification, repair, renovation or commissioning of any moveable or immovable property;
It is Declared Service under Finance Act, 1994
Section 66E(h) : service portion in the execution of a works contract.
Section 65B(54) "works contract" means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property;
5(g)
Transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; and
It is Declared Service under Finance Act, 1994
Section 66E(f): transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods;
Section 66E(g): activities in relation to delivery of goods on hire purchase or any system of payment by instalments;
5(h)
Supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration.
It is Declared Service under Finance Act, 1994
Section 66E(i): service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity .
3(2A)
Where a person acting as an agent who, for an agreed commission or brokerage, either supplies or receives any goods and/or services on behalf of any principal, the transaction between such principal and agent shall be deemed to be a supply.
3(3)
Subject to sub-section (2), the Central or a State Government may, upon recommendation of the Council, specify, by notification, the transactions that are to be treated as-
(i) a supply of goods and not as a supply of services; or
(ii) a supply of services and not as a supply of goods; or
(iii) neither a supply of goods nor a supply of services.
TIME OF SUPPLY OF SERVICES
Defined in Section 2(102) of Model GST Law.
2(102) "time of supply of services" shall have the meaning as assigned to it in section 13.
Before Concluding:
From the above comparative analysis, it is seen that almost the major provisions of the 'Point of Taxation Rules, 2011' have been retained in of the Model GST Law (Section 13) However, the provisions shown in TABLE VI[ Rule 5, 8, 8A and Rule 7(2 nd proviso to Rule 7:service provided to 'associated enterprises'] have not been incorporated. In my opinion, these provisions should also be added so as to avoid any confusion or ambiguity of law in respect of time of supply of services.
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SERVICE TAX, starting its journey from the year 1994 as an independent stream of Central indirect tax, will change its course of flow under GST regime (when it will be subsumed in 'Goods and Service Tax'). For "Services", the GST will retain the components of taxability- 'Taxable Event' & 'Point of Taxation' with different concept & approach. The tributary will not lose its identity & character even after being submerged into the main-stream!
