Queries on taxation and service tax liabilities, addressed by Vivek Sharma & Rajat Bose of Ernst & Young

We are the owners of a mall. We have a single electricity meter in our mall and we have installed sub-meters in all shops in the mall. We also ensure 100% power back-up in case of break-downs. For such facilitation of electricity, we recover a fixed sum per unit basis from each shop owner. Based on the actual usage in the main meter installed for the mall, we pay the electricity department. We have been informed that service tax on supply of electricity to various tenants is covered under the negative list, hence, not liable to service tax. Can you please confirm?

As you must be aware, service tax is now leviable on all services, except services specified in negative list and exemption list. Per Entry No (k) of the negative list, ?transmission or distribution of electricity by an electricity transmission or distribution utility? is kept outside the purview of service tax.

Further, it is clarified that the agencies holding a distribution of electricity licence under the Electricity Act, 2003 or entrusted with distribution by the central/state government and engaged in supply of electricity are not liable to pay service tax in India.

Since, you are a developer and per our understanding do not hold such license or have not been entrusted by the central government/state government for distribution, you shall not be covered by the negative list. Therefore, the provision of electricity service to various tenants should be leviable to service tax in India.

Tax on services outside India

We are a service provider in India and have entered into a contract with a foreign training agency (ABC). As per the contract, ABC will be conducting seminars and workshops in Amsterdam during the year and we would send our employees to attend the same. We would be paying approximately $10,000 per employee for the training. Since services are performed outside India, will service tax apply on such a transaction?

With effect from July 1, 2012, only such activities which are covered under the negative list or the exemption list are not liable to service tax. The nature of activities provided by you is not mentioned in either the negative list or the exemption list. Since, the services are not covered under the exempted/negative list; the same shall be leviable to service tax in India subject to the condition that service is being provided in the taxable territory. The government has notified Place of Provision of Service Rules, 2012 (POS Rules) in order to determine the place of provision of services. As per Rule 6, in case of admission/organisation of events, conference, fair, exhibition etc, the place of provision of service shall be where the event is held.

Accordingly, in view of the above rule, the place of provision of service in this case shall be Amsterdam. Therefore, service tax shall not be leviable on this provision of services.

Taxable services in catering

We are in the business of outdoor catering for parties. We are not able to segregate the amount of service and supply of goods. With the introduction of negative list, kindly let us know the effect of the new regime on our services?

As per Finance Act 2012, service portion in an activity, wherein the articles of food or drinks are supplied is provided as a declared service. Accordingly, as per the charging Section 66B, where the said activity is carried out by a person for another for consideration, the same would amount to provision of service, thereby leviable to service tax in India.

With regard to the payment of service tax, a new rule has been inserted under the service tax (determination of value) services, 2006. As per Rule 2C, the value of taxable services involved in supply of food and drinks in outdoor catering shall be 60% of the total amount.

Herein, the expression ?total amount? refers to the sum total of gross amount charged, including the fair market value of all goods and services supplied by the service recipient, reduced by the amount charged by the service provider for such goods and services.

The replies do not constitute professional advice. Neither Ernst & Young nor FE is liable for any action taken on the basis of these replies. Readers may mail their queries to fesmes@gmail.com