Ours is a private hospital and we conduct health check-ups for various insurance companies under service contracts. We have heard that going forward, service tax would be liable to be paid on such services. We seek your advice on various provisions of the law that we should keep in mind.

The government has imposed service tax on health check-ups undertaken by hospitals or medical establishments for employees of business entities and services provided under health schemes offered by insurance companies. However, the tax on these services would be payable only if the payment for such health check-up or preventive care or treatment, etc. is made directly by the business entity or the insurance company to the hospital or medical establishment. Therefore, hospitals or medical establishments providing the services will have to register themselves with the service tax department as service providers and charge service tax on the services if the total turnover of taxable services exceeds Rs 10 lakh. Additionally, the service providers can claim Cenvat credit of the input service tax/excise paid by them for services received/ machinery bought by them for providing taxable services. Provisions of the rule 6 of the Cenvat Credit Rules, 2004 shall be applicable in this regard.

We are a software development firm. We have heard that both VAT and service tax are to be charged on software developed by us for clients. What would you suggest?

Whether software development leads to the sale of goods or provision of service has been a contentious issue for a long time now. The Supreme Court, in the case of Tata Consultancy Services, laid down the principle that the intangible property would qualify as ?goods?, provided it has utility, it?s capable of being bought and sold and it?s capable of being transmitted, transferred, delivered, stored and possessed. Accordingly, software was held to be goods in the case of BSNL by the Supreme Court. Further, it would be relevant to note that the definition of the taxable service of ?information technology software service? specifically defines the development of software as a taxable service. Hence, as there is no clarification or notification issued by the government in this regard, it would be prudent to deposit both VAT and service tax on the same for the time being.

Ours is a company having some real estate that has been rented to various firms. We have heard that the government has reimposed service tax on renting of immovable property with effect from June 1, 2007 after a decision of the Delhi High Court. However, we are also aware that there is a development regarding the same in the Andhra Pradesh High Court. What would you suggest as to whether service tax should be charged or not on the rent received by us?

The renting of immovable property service was defined under law as ?a service provided to any person by any other person in relation to renting of immovable property for use in the course or furtherance of business or commerce?. However, the levy of service tax on the same was challenged in various high courts on the ground that merely allowing the use of land/building does not amount to provision of a service. The Delhi High Court, in the case of Home Solutions Retail India Ltd vs Ors, held that the notifications and amendments imposing service tax on renting of immovable property are unconstitutional. Post judgement, the revenue department went to appeal before the Supreme Court, and the apex court did not grant stay on the Delhi High Court?s order.

However, amendments were made through the Finance Act, 2010 in the definition of the ?renting of immovable property service? to provide explicitly that the activity of ?renting? itself is a taxable service. The change has been given retrospective effect from June 1, 2007. However, Trent Ltd and Future Value Retail Ltd have challenged the validity of the same before the AP High Court. The petitioner also filed an injunction petition seeking to restrain the department from levying, collecting or recovering any service tax, interest or penalty on renting of immovable property from the petitioner, pending disposal of the above writ petition. It appears that the high court has granted the interim injunction.

However, it would be pertinent to note that since the department is so insistent on levying service tax on renting of immovable property, it would be better for taxpayers to pay the tax now under contention. This way they can challenge the levy later in court or receive a refund in case courts hold the levy as unconstitutional.

The replies do not constitute professional advice. Neither Ernst & Young nor FE is liable for any action taken on the basis of these replies