Classification Of Services

The provisions relating to Service Tax were brought into force with effect from 1st July 1994 vide notification No. 1/94 dated June 28, 1994 published in the Gazette of India.. It extends to whole of India except the state of Jammu & Kashmir. Set out hereunder are the services hat have been brought within the purview of service tax since its introduction vide the Finance Act, 1994:

The services, brought under the tax net in the year 1994-95, are as below:

1. Telephone
2. Stockbroker
3. General Insurance

The Finance Act (2) 1996 enlarged the scope of levy of Service Tax covering three more services, viz.,

1. Advertising agencies,
2. Courier agencies
3. Radio pager services.

But tax on these services was made applicable from 1st November, 1996. The Finance Acts of 1997 and 1998 further extended the scope of service tax to cover a larger number of services rendered by the following service providers, from the dates indicated against each of them.

The services provided by goods transport operators, out door caterers and pandal shamiana contractors were brought under the tax net in the budget 1997-98, but abolished vide Notification No.49/98, 2nd June, 1998.

Government of India has notified imposition of service Tax on twelve new services in 1998-99 union Budget. These services listed below were notified on 7th October, 1998 and were subjected to levy of Service Tax w.e.f. 16th October, 1998.

16. Architects
17. Interior Decorators
18. Management Consultants
19. Practicing Chartered Accountants
20. Practicing Company Secretaries
21. Practicing Cost Accountants
22. Real Estates Agents/Consultants
23. Credit Rating Agencies
24. Private Security Agencies
25. Market Research Agencies
26. Underwriters Agencies

In case of mechanized slaughter houses, since exempted, vide Notification No.58/98 dtd. 07.10.1998, the rate of Service Tax was used to be a specific rate based on per animal slaughtered. In the Finance Act’2001, the levy of service tax has been extended to 14 more services, which are listed below. This levy is effective from 16.07.2001.

27. Scientific and technical consultancy services
28. Photography
29. Convention
30. Telegraph
31. Telex
32. Facsimile (fax)
33. Online information and database access or retrieval
34. Video-tape production
35. Sound recording
36. Broadcasting
37. Insurance auxiliary activity
38. Banking and other financial services
39. Port
40. Authorised Service Stations
41. Leased circuits Services

In the Budget 2002-2003, 10 more services have been added to the tax net which are listed below. This levy is effective from 16.08.2002.

42. Auxiliary services to life insurance
43. Cargo handling
44. Storage and warehousing services
45. Event Management
46. Cable operators
47. Beauty parlours
48. Health and fitness centres
49. Fashion designer
50. Rail travel agents.
51. Dry cleaning services.

and these services have been notified on 1-8-2002 and were subject to levy of Service Tax w.e.f. 16-8-2002.

In the Budget 2003-2004, more services have been added to the tax net, which are listed below. This levy is with respect to the belowstated services was effective from July 1, 2003.

52. Commercial vocational institutes, coaching centres and private tutorials
53. Maintenance and repair services.
54. Commissioning and installation services
55. Business auxiliary service
56. Technical testing and analysis; technical inspection and certification
57. Internet cafe services
58. Franchise services

In the budget 2004-2005 13 more services are proposed to be added, to the list of taxable services. The services are:

59. Airport services
60. Transport of goods by air
61. Survey and exploration of minerals
62. Business exhibition services
63. Transport of goods by road
64. opinion poll services
65. Intellectual property services
66. Broker of forward contracts
67. Pandal and shamiana contractors
68. Outdoor caterers
69. Independent TV/radio programme producers
70. Construction services in respect of commercial and industrial constructions
71. Travel agents

The basis for classification of services can be found in Section 65A of the Finance Act, 1994 according to which, classification of taxable services shall be determined in terms of the sub clauses of clause (104) of Section 65 of the Finance Act, 1994.

It has been seen that in practice, the classification of services is not a watertight chamber. On the contrary, it has been seen that there are numerous overlaps when related services are concerned. It is to obviate such confusion that the principles that underlie the classification of services, in instance where a service is classifiable under more than one sub clause of clause (104) of Section 65 of the Finance Act, 1994, have been further elaborated as under:

1. The service shall be placed in a sub clause which provides the more specific description;
2. Services consisting of a combination of services shall be classified based on the service that gives them their essential character. In other words, composite services should be classified on basis of ‘essential character’, if no specific description can be found for such specific services;
3. When the service cannot be classified by either 1 or 2, i.e. either specific description or essential character it shall be classified under the sub clause that occurs first among the sub classes that merit consideration for the purpose of classification.

As a chronological list of services has been provided above the same need not be stated again