Negative list-based service tax: Issues & wish list for Budget

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Rajeev Dimri: Feb 21 2013, 02:18 IST

The most significant of all the reforms introduced in the Union Budget 2012 was the introduction of a comprehensive service tax regime based on a ‘negative list of services’ that seeks to tax all services barring the services covered in the negative list. This paradigm shift, however, has not been free from ambiguities and it is hoped that suitable clarity is provided through Budget 2013 on at least some of the critical aspects.

One of the biggest issues requiring clarity is the scope and ambit of the phrase “Online information and database access or retrieval services”. The bone of contention arises from the fact that under the Place of Provision of Service Rules, 2012, the place of provision of services qualifying as “Online….” would be the location of the service provider. This is of immense significance for various intellectual property-related services provided from outside India – if such services qualify as “Online….” the ‘place of provision’ of the said services would be the location of the service provider outside India and thus be outside the service tax net. One of the most typical transactions that can benefit from the above is a transaction of download of software under a EULA by an Indian customer from a service provider outside India. The fact that ‘software’ qualifies as ‘information’ under the Information Technology Act, 2000, strengthens the argument that such services should qualify as “Online….” services and avail the benefit of no service tax. The doubt gets aggravated because of the use of

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