Honeymoon of IT Sector with Service Tax is Over

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Honeymoon of IT Sector with Service Tax is Over

By RS Sharma Advocate

IT Industry which is already hit by recession in US is no more immune from service tax.The Finance Bill has proposed withdrawal of exemption hereto being availed by IT Sector under Business Auxiliary Service by amending Section 65 of the Finance Act 1994 and also specifically including information technology software service under service tax net. The only solace to IT firms is that service tax will be effective after passing of the Finance Bill 2008 by both the Houses of Parliament and after rubber stamp of the President.

In addition the excise duty on packaged software has also been hiked to 12 per cent.

Section 65 is being amended to specifically include and define the following services in the list of taxable services,namely:

(i) information technology software service,

(ii) management of investment under Unit Linked Insurance Plan (ULIP) service,

(iii) stock exchange service,

(iv) recognised association or registered association commonly known as commodity exchange service,

(v) processing and clearing house service,

(vi) supply of tangible goods for use service;

(vii) internet telecommunication service.

Taxable service means any service provided or to be provided to any person, by any other person in relation to information technology software for use in the course, or furtherance, of business or commerce, including,—

(i) development of information technology software,

(ii) study, analysis, design and programming of information technology software,

(iii) adaptation, upgradation, enhancement, implementation and other similar services related to information technology software,

(iv) providing advice, consultancy and assistance on matters related to information technology software, including conducting feasibility studies on implementation of a system, specifications for a database design, guidance and assistance during the startup phase of a new system, specifications to secure a database, advice on proprietary information technology software,

(v) acquiring the right to use information technology software for commercial exploitation including right to reproduce, distribute and sell information technology software and right to use software components for the creation of and inclusion in other information technology software products,

(vi) acquiring the right to use information technology software supplied electronically;

The definition and scope of the following taxable services is being amended as a result of on levy of service tax on information technology software service, namely:-

(i) Business auxiliary service [section 65(19)], so as to omit the reference to exclusion of information technology service;

(ii) Consulting engineer service [section 65(105)(g)], so as to omit the exclusion of computer software engineering consultancy and provide that services provided by a consulting engineer in relation to advice, consultancy or technical assistance in the disciplines of both computer hardware engineering and computer software engineering shall also be classifiable under this service;

(iii) Technical testing and analysis service [section 65(106)] so as to specifically include testing or analysis of information technology software;

(iv) Technical inspection and certification service [section 65(108)] so as to specifically include inspection, examination and certification of information technology software;

(i) Banking and other financial services [section 65(12)] so as to levy service tax on purchase or sale of foreign currency, including money changing by an authorized dealer and authorized money changer;

(ii) Foreign exchange broker services provided by individual [section 65(105)(zzk)] so as to levy service tax on purchase or sale of foreign currency, including money changing by an authorized dealer and authorized money changer;

(iii) Business auxiliary service [section 65(19)] so as to clarify as a removal of doubt, that “service in relation to promotion or marketing of service provided by the client” includes any service provided in relation to promotion or marketing of games of chance, organized, conducted or promoted by the client;

(iv) Cargo handling service [section 65(23)] so as to specifically include services of packing together with transportation of cargo or goods, with or without one or more other services like loading, unloading, unpacking;

(v) Tour operator’s service [section 65(115)] so as to include any person engaged in the business of operating tours in a contract carriage and to provide that “tour” does not include a journey organized or arranged for use by an educational body imparting skill or knowledge or lessons on any subject or field, other than a commercial training or coaching centre;

(vi) Renting of immovable property so as to clarify as a removal of doubt, that renting of immovable property service includes allowing or permitting the use of space in an immovable property, irrespective of the transfer of possession or control of the immovable property.

Further, the rate of Service Tax on Works Contract service under composition scheme has also been hiked to 4 per cent vide Service Tax Notification No. 7/2008 with effect from 1^st March 2008.

(The Writer is an Advocate & Consultant based in Delhi and is advising several MNCs and Indian Corporates on Service Tax, Central Excise & Customs matters. He can be mailed at rssharma@gmail.com)

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